Pharmacy Acquisitions and New Hampshire Bridge Loans

By Brad MacLiver
Authorship and profile at Google


With the changes in the NH pharmacy industry independent drug store owners, small and regional pharmacy chains, and pharmacy equity investment groups are acquiring pharmacies in New Hampshire to obtain a larger competitive footprint in a geographic area. There might be opportunities that require action during the acquisition phase of the business expansion which is quicker than the traditional funding process.

Bridge Loans are a tool for short-term financing that are used while waiting for permanent financing or the next stage of financing to be obtained. These loans provide funding to "bridge" the gap between a company’s current needs and their long term financing requirements.  Permanent financing is generally used to "take out," or pay back, the bridge loan.

One of the characteristics of a bridge loan is that they can close quickly, which in turn allows a company to capitalize on a timely business opportunity, or acquisition. The quick access to money can also allow a business the chance to avoid penalties, bankruptcy, or other temporary problems. If longer term issues need to be dealt with, this “transitional financing” provides the company time until longer term financing can be secured.

Another quality of bridge loans is that the process usually necessitates less documentation than conventional financing. Bridge loan lenders usually don't have the same sort of government regulations to adhere to, which allows them to have more flexibility in their lending criteria and the documentation they require. However, less documentation does not necessarily mean they will not perform due diligence to have a level of comfort with the transaction before they fund.

Examples of using Bridge Loans in NH Pharmacy Transactions:

1. An independent pharmacy owner in New Hampshire learns of health issues and decides to quickly sell the family owned pharmacy to an employee or local competitor. More traditional financing methods for the pharmacy buyer may require a time line that is not acceptable when considering the circumstances. Bridge loans can be used to quickly accomplish this transaction.

2. A small pharmacy chain requires $1 million in order to expand their business. This chain has 3 new equity investors who will be investing in the firm over the next 6 months but investing at different intervals. However, the business has opportunities which require action before 6 months. The quick closing bridge loan will help provice the needed funds to the New Hampshire pharmacy chain so they can complete their expansion and increase profits. Money from the 3 new equity investors will pay off the bridge loan.

3. A pharmacy owner in a leased location has an opportunity to quickly acquire a commercial property that would be a great pharmacy location in New Hampshire, but the property is in a state of disrepair. A bridge loan gives the required funds to acquire and rehabilitate of the property and once that is complete conventional long term financing can be obtained.

4. A pharmacy group developing new NH pharmacy locations can receive bridge loan funding to get through the permitting process of a project when conventional financing isn’t available at this early stage due to there is still too much risk. A bridge loan allows the project to move into the construction phase and then qualify for other forms of financing.

5. When a pharmacy in New Hampshire is owned by two or more partners and one of the partners is ready to exit the business, a bridge loan can help ensure cash flow and uninterrupted operation of business during the partner buyout.

6. Real estate, or equipment bought at auction may have a narrow window for closing the deal and timing of traditional financing would keep the buyer from proceeding with the opportunity. Benefits of a bridge loan will permit the NH pharmacy owner to quickly respond to the opportunity.

When there are business opportunities, buying pharmacies in New Hampshire, selling pharmacies, quick deadlines, an old loan maturing before a new loan can be put in place, funding needs during the permit, planning, or evaluating stages, etc., bridge loans can be an essential financial tool.

Tips regarding NH pharmacy bridge loans:                        

1. Bridge loans are quick to obtain, but quick to expire.

2. A bridge loan is similar to a hard money loan and the terms are often used interchangeably in conversations. Both are short-term, higher interest rate, non-standard loans, but in some circles hard money refers to the lending source and a bridge loan refers to the duration of the loan.

3. Because bridge loans usually come with higher interest rates than traditional financing a larger down payment, meaning a lower Loan to Value (LTV) and a lower level of risk and provides an opportunity for lower interest rates.

4. With the shorter time period of bridge loans borrowers will need to be aware that fees for valuations, legal, dues diligence, etc., will be amortized over a shorter period than traditional financing transactions.

Understand the types of deals that require a bridge loan may be considered speculative in nature, or have higher risk factors. Due to this many banks do not offer bridge loans. Banks must meet government regulations and need to justify their lending practices. Riskier bridge loans do not usually fall within the lending parameters of many banks. Therefore a majority of the bridge loans will come from private investment firms.  It is best to consult a company that has access to a number of funding sources who provide bridge loans.

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New Hampshire Pharmacy Acquisition Finance

By Brad MacLiver
Authorship and profile at Google


When a New Hampshire (NH) pharmacy or drug store is being sold, seldom does the buyer have to pay “out of pocket” cash for the acquisition. Even when cash is available, transactions for pharmacy acquisition strategies usually involve financing.

Acquisitions will typically take 6-9 months to complete, so the pharmacy seller in New Hampshire will need the buyer to provide some proof up front about their ability to close the transaction. Acquisitions will require many hours worth of due diligence and negotiation which means the process should involve qualified parties.

Along with the buyer and seller the acquisition will involve attorneys, accountants, lenders, valuation companies, industry specialists, along with others. No one wants to pursue 6-9 months of work involving a variety of highly paid professionals without having some confidence of the NH pharmacy buyer’s ability to close the deal.

The process will begin with determining the value of the business. There are many companies that offer valuation services. However, New Hampshire pharmacies are not ice cream stores. There are many aspects of valuing a pharmacy that are unique to the industry, so generic valuations or simple accounting formulas should not be used. An industry specialist should be used for valuing the pharmacies instead of a valuation company that has a broader spectrum.

In order to complete a valuation the selling company needs to provide up-to-date data. Lenders will not accept old data, or a sellers “gut feeling.” Lenders need to make a decision to finance based on sound and verifiable information.                

Structuring the transaction is extremely important. The seller of course wants as much money as possible and wants cash. The buyer needs to spread out the debt service and wants to have as little cash as possible invested in the acquisition.

New Hampshire Pharmacies and drug stores are in an industry where it is more difficult to obtain business loan due to the majority of the value in a pharmacy is the customer files and not hard assets. Therefore, for the acquisition to be financed a lender will need a strong understanding of the industry and what, beyond the collateralized assets, the company offers to reduce the perceived risk.

Pharmacies have typically been known for generating profits and to be stable businesses. However, they are usually in leased locations, and their furniture, fixtures, and computers will only provide $15-20,000 of collateral for a buyer possibly requesting a million dollar loan. A lot of money is tied up in inventory, but the small pills are considered by a lender to easy to move out the door in the event of default. Due to these circumstances many lenders will not loan money to these traditional money making businesses. A successful transaction takes a lender that understands the New Hampshire pharmacy industry.

Tips regarding pharmacy acquisitions and finance:

1. Attorneys and CPAs who have been representing the pharmacy seller in NH for many years may see the transaction as putting themselves in a position of losing a client when the business is sold. Make sure they are working diligently on the transaction and are not slowing or undermining the process

2. Since pharmacy acquisitions involve 6-9 months of work to complete , all parties involved need to be aware of time tables. Much too often, items of importance end up sitting on the desk of someone that is outside of the control of the buyer or seller.

3. All of the financial information needs to be current. Over the long process, the data supplied to both the lender and the buyer will need to be updated on a continual basis. Things can change dramatically during a 6-9 month period and the New Hampshire pharmacy seller will need to continuously prove the financial condition of the company.

When “pharmacy acquisition finance” is being pursued, ensure that the valuation company and the lender have expertise in that industry for the best chance of success. Choose a company that has both pharmacy experience, has expertise, and is a direct correspondent with lenders that understand NH pharmacy.

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Current Market Conditions in the New Hampshire Pharmacy Industry

By Brad MacLiver
Authorship and profile at Google


Currently there are a number of factors that are impacting the current market conditions of the U.S. pharmacy industry in NH. These factors are affecting the pharmacy business valuations of pharmacies, New Hampshire drug stores, and other pharmacies all across the U.S.

Local demographics:

The valuation process also includes local demographics and local market conditions. Smaller communities have less potential for growth and with the declining profits a buyer must purchase at a lower value because they will have to service the debt from a business loan and still try to make a living. The same is true for communities that have lost population due to economic conditions, or have a high rate of unemployment. Fewer people, or fewer customers with the ability to purchase, will mean fewer sales and less chance of any substantial improvement in the near term. This results in a lower pharmacy business value.

Pharmacists Shortage in New Hampshire:

Pharmacies in NH and across the country have had difficulties in finding pharmacists.  This shortage of pharmacists not only affects employee opportunities it also affects the number of potential independent buyers. 

Fewer Buyers:

There are also fewer corporate buyers. Some of the largest pharmacy chains have been purchased and consolidated in the New Hampshire pharmacy industry roll up. Many smaller chains have run into financial difficulties and have stopped their expansion. It is more difficult to drive a price higher when there are fewer willing, or capable, to purchase.

Current Market Conditions Requires Industry Roll-up:

The consolidation of the pharmacy industry in New Hampshire is required to get more traffic into a single store.  Due to simple economics, when any business has a reduction in profits they are less attractive to a buyer and pharmacy business values drop. There are many factors contributing to the downward pressure of pharmacy values and there is not any expectation of a turn around. Pharmacy owners should not be fooled by inexperienced Brokers claiming grand outcomes and over stating pharmacy business values not based on realistic market conditions.

With the consolidation of the pharmacy industry that has been happening for several years, many new brokers have entered the market to broker pharmacy acquisitions. Most brokers do not have pharmacy related experience, nor do they use current market conditions when they value a NH pharmacy. Most are using simple accounting formulas that hold no sound reasoning for the value when faced with current pharmacy market conditions. Due to this many brokers are valuing pharmacies 2 to 3 times more than what the market is really willing to pay. Any inexperienced person can quote a high value to capture a listing.  However, that does not mean the over inflated asking price is what the business will actually sell for.

Mail Order:

Some insurance companies are designating a noticeable amount of pharmacy patients as “long-term medications” and require they only purchase the medications from mail order pharmacy companies who provide products at lower prices. This results in local pharmacies in New Hampshire not only missing out on prescription sales, but front-end sales will also decline since the customer is not entering the store. Pharmacy mail order sales have now surpassed sales from independent retail pharmacies.

Choose a firm that provides NH pharmacy business valuations based on real market conditions and does not use a simple formula for calculating the value of a pharmacy. Complex methods must be utilized to derive the value of a pharmacy.

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