There is a common misconception in the pharmacy market that the value of a business will be aligned to the price paid in the market. While this term may be realised in an unbiased market; the pharmacy market is by its very nature a biased market. As such, it is common, (if not expected), that the value of a pharmacy will not equate to the price achieved in an open market.
The theory is that if the market is well-informed, and there is no bias, that the market price will equate to the value of the asset. In markets such as property and shares, there are hundreds, if not thousands of transactions that occur on a regular basis. While there are opportunities for arbitrage, these are quickly rectified by the market and adjusted accordingly.
However, in pharmacy there is a biased market. Of the 5,200 odd pharmacies in Australia, only about 400 of these change hands each year. Many of these transactions involve change in partnership structures that mean they never even hit the open market. As such, it is not uncommon that there may be no comparable sales for regions and hence the market can often be uninformed. In addition, the ability for incomming owners to make strong changes from inefficiencies of current vendors, (as well as dramatic changes to the business), means that there is a bias in the assessment of value between the vendor and the purchaser. These market inefficiencies result in opportunities for informed purchasers, but often mean that the price paid is different to the value of the business.
As a purchaser, your goal should be to assess the value of the pharmacy in YOUR hands and make an offer on this basis.
With 40% of pharmacy owners looking to retire in the coming years, there are many fantastic opportunities for future pharmacy owners. However, the market is paying for the opportunity to make readily available and significant changes in these sites. Be aware that in many of these sites, the market is paying well in excess of the value.
As a buyer - take some time to understand the market in your area and prepare yourself for opportunities in which the value and price do not align. Ensure you have sufficient equity to cover the difference!
Advertisement: