Characteristics of a Pharmacist Who Can Carry on a Legacy
In short, the new owner’s livelihood and the pharmacy’s legacy are simultaneously at stake when a buyer and a seller sit down at the bargaining table. Every time an independent pharmacy goes up for sale, a successful outcome depends on both sides being prepared, transparent and reasonable during negotiations. The buyer and seller must cultivate trust with one another from the very start of negotiations and carry it through the ownership transition.
BackdropThe owner’s decision to sell often comes as they approach retirement. About 30 percent of actively practicing U.S. pharmacists are over age 55.1 For many prospective retirees, the store’s business lifecycle has plateaued at a mature stage. Extensive changes may be needed to spur further growth, but the owner doesn’t necessarily have the time, energy or means to invest in new technology and diversify revenue streams.
Additionally, pharmacies nationwide are experiencing tremendous pressure on gross margins caused by declining reimbursement and unpredictable clawbacks. As a result, some owners are actually fast-tracking their exit strategy and succession plan prior to reaching retirement age.
At the same time, chain pharmacies are angling to gain patients who are served by independents. Chains often approach independent pharmacy owners in close proximity with unsolicited offers to buy their patient files. The terms are usually attractive on the surface, but generally contain clauses regarding patient retention and space occupancy that give the chain ample time to build relationships with the independent pharmacy’s patients. Meanwhile, staff members may be left without jobs while the local community loses a small business from its landscape. Make no mistake, the chain’s goal is to capture patients and eventually shut down the business of its neighboring independent competitor.
It’s a challenging environment, to say the least. However, with hundreds of independent pharmacy ownership changes happening every year,2 there are plenty of private buyers and sellers interested in and positioned to make things work. For example, mid-career pharmacy owners may be looking to expand, while recent pharmacy school graduates (whose numbers nearly doubled between 2000 and 20133) may be attracted to the entrepreneurial opportunity of owning, upgrading and running an independent store.
So, how can a buyer and seller work together to ensure a successful transition?
Case in pointThe following scenario, based on a real-world case, illustrates how a collaborative approach provides the foundation for preserving an up-for-sale pharmacy’s legacy.
The buyer (let’s call him Ben) wanted to purchase a well-established independent pharmacy with strong ties in the community. Ben openly asked the semi-retired seller (fictitiously named Sam) what he wanted from a buyer.
“Take care of my staff and my patients,” responded Sam. “They’ve been with me for decades.”
Sam truly believed he had a legacy worth continuing and wanted to make sure Ben was the right person to take over the store. Sam wondered whether Ben would consider working in confidence under the guise of a relief pharmacist for a few days at the pharmacy while the deal was still in escrow.
“I want you to be around my patients and staff,” Sam explained. “And you can learn our workflow.”
Although Ben hadn’t anticipated the development—and frankly, this doesn’t happen often in pharmacy transactions—he saw it as an opportunity to build trust with Sam and earn his respect.
After the brief trial period, Sam felt confident in Ben’s acquisition and operational plan. Sam could tell by Ben’s interactions with staff and patients that he would be a good fit.
This arrangement worked in the buyer’s favor, too. Ben knew it would take more than a few days for patients to get used to seeing his face behind the pharmacy counter and wanted to keep Sam around to smooth the transition. To that end, Ben offered to hire Sam back as a part-time pharmacist. What’s more, Ben convinced Sam to travel with him for face-to-face visits with prescriber offices, which helped facilitate prescriber-pharmacy relationships.
Granted, the situation described above was unique, as is every transaction. Nonetheless, there are certain qualities buyers have that typically yield greater chance of ownership success:
- Fair: The buyer shouldn’t try to “squeeze” the seller on a fair and equitable acquisition price. When that happens, the seller typically drops out of any meaningful dialogue and transition support. The buyer needs to stay focused on the long-term value of the acquisition and be prepared to work directly with the seller in a transparent and reasonable manner.
- Loyal: Sweeping staff changes can have dire consequences on patient retention. Valuable pharmacy clerks and technicians know regular patients by name and greet them when they walk in the door. They’re often the primary reason why patients shop there and have a significant influence on patient behavior. A savvy buyer will find out from the seller which staff members hold those key relationships and strive to keep them onboard.
- Business-minded: The buyer should have as much passion for being a pharmacist as running a business.
- Creative: The legacy of an independent pharmacy hinges on the owner’s ability to make the business stand out from chain competitors. Independents do a superior job of delivering personalized care and building lasting relationships with patients and prescribers. Does the buyer know how to differentiate the pharmacy from the competition? If not, the buyer will have to climb a steep learning curve while attempting to rev up business.
- Professional: If the buyer already owns another pharmacy, the seller should visit that store to see its operation in action. It should be evident that patients want to shop there and that staff members are productive in their jobs.
- Change-oriented: A buyer may find “gold” in a mature pharmacy business that has been operating on auto-pilot without any new service offerings or capabilities. An ambitious and tech-savvy new owner will develop or refine strategies for future growth, such as introducing adherence programs, improving inventory and labor management practices, expanding patient services with diversified revenue streams and establishing a robust online presence.
- Persuasive: The seller often plays a vital role in introducing the buyer to key patients and prescribers. On the cusp of a finalized deal, the seller should feel confident enough in the buyer’s character to convince patients and prescribers that the existing pharmacy will remain a healthcare destination of choice in the community.
- Resourceful: A buyer who plans ahead and consults with an advisory team will tend to make sound business decisions while avoiding costly mistakes. This is true for the acquisition as well as for the growth, maturity and exit stages of the pharmacy business lifecycle.
- Optimistic: A positive attitude is contagious and will lift the entire operation to another level. An optimistic buyer will focus on moving forward and confront challenges as opportunities.
Ultimately, buyers exemplifying a progressive leadership spirit will inspire patients, prescribers and staff members to ensure the preservation of independent pharmacy’s legacy.
Ready to be part of a successful ownership transition?
2. ComputerTalk for the Pharmacist. Pharmacy Ownership Transition: A Primer. https://www.computertalk.com/pharmacy-ownership-transition-primer
3. Pharmacy Times. The Pharmacy Job Crisis: Blame the Pharmacy School Bubble. https://www.pharmacytimes.com/contributor/alex-barker-pharmd/2015/05/the-pharmacy-job-crisis-blame-the-pharmacy-school-bubble