A pharmacy business can have a strong trading record, solid customer base and high goodwill. However, it can still find it challenging to obtain the right funding for an acquisition, refinance or expansion. For lenders in the UK, each transaction has separate evaluation requirements. This is where tailored pharmacy finance can make a meaningful difference.
A case study by AWS Private Finance serves as a useful example of how tailored funding can support a pharmacy management buy-out while preserving the business's ability to operate and grow.
In this case, a knowledgeable pharmacist had already established a long-standing community pharmacy. It was a business with two minority shareholders who wanted to retire.
The pharmacist wanted to buy 100% of the business through a management buy-out. The transaction included the restructuring of the group and the formation of a new holding company to acquire 100% of the shares of the trading company.
The pharmacy was in leasehold premises - some 20 years still to go on the lease. This meant the funding could not rely primarily on property security. Rather, the strength of the pharmacy, its goodwill, trading and its reputation in the local healthcare market were taken into account in structuring the finance.
The funding arrangement eventually was made up of £1.5 million in loan repayments, representing about 65% of the value of the business, with a 15-year term of payment and no early repayment penalties. The loan was charged a 0.6% arrangement fee to keep working capital.
This is just one example of why a pharmacy acquisition may not be eligible for a regular commercial loan. The overall value of the pharmacy business may be based on its trading history, goodwill, patient base and future earning potential.
The financing methodology would also have to be adjusted to reflect the client's existing equity balance. The client's capital remained within the business through a Director's Loan, supported by a Letter of Postponement. This allowed the lender's needs to be satisfied while keeping the pharmacist in control.
Another significant factor was the timing. The finance process had to move quickly to help the sellers complete this transaction prior to the end of the tax year, in the interest of their overall tax planning.
While this case focuses on an acquisition, the same concepts can be used when discussing refinancing a pharmacy. A refinance can help you reorganize your debt, restructure repayment conditions, or free up cash and provide extra liquidity for future investing.
When making refinancing choices, owners of pharmacies must take into account cash flow, current debt, the value of the business and planned investments. The funding structure can offer some greater flexibility, and at the same time make repayments more affordable to the business.
For pharmacy owners and pharmacists in the UK, planning for their next stage of growth, opting for pharmacy finance can provide a structured route to explore acquisition, refinancing or expansion opportunities. The guidance of a specialist mortgage broker can be a useful choice to navigate the best options and get assistance with documentation.
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