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Pharmacy Growth Through Acquisition

Written by Peter Barron

Peter Barron has served as a change agent in the professional practice of pharmacy in New Zealand. While he is a strong advocate of patient care and advancement of pharmacy practice, Peter is also a pioneer and innovator, introducing new models of pharmacy practice into New Zealand by opening a chain of pharmacies. He shared these thoughts about growth through acquisition—and the risks involved—with DELTA Rx:

Many pharmacists tend to be risk adverse, which can hinder growth. Describe the thought process and issues that led you to overcome this barrier and pursue acquisition as a means of growing your business.

When we started out in business it was with little equity and a lot of sweat. It was clear to me that unless we were lucky, the best we could hope for was to be a successful little fish in a big pond. I was inspired by Australian motivational speaker Winston Marsh, who suggested that it would be really great to lie on the beaches of the world and have waves of money break over you. I liked the idea so my goal became to achieve that dream.

I have never been afraid of debt. Adding zeroes to an amount doesn’t actually increase the risk. I guess the other realization, which was a little longer coming, is that financing is just like the rent and wages. It is a cost of doing business. Banks are in the business of renting money—all they want is a long-term rental like your landlord, and to be secure that you will continue to pay the rent.

Once we got past the first couple of purchases, we discovered that it wasn’t actually difficult to finance acquisitions and having conquered fear of debt, we were on our way.

Our view remains that in order to bring about the changes that we believe need to happen in retail pharmacy (and to get us our place in the sun so we can lie those beaches and let waves of money break over us), we needed the strength of numbers. With many stores, we have the power needed to drive change.

Acquisition is a no- brainer as a means of growing our business.

What can you tell us about the process involved in a successful pharmacy acquisition?
The first step is having a clear idea of where you want to be and what you need to do in order to get there. Once those decisions are made it is a matter of identifying the type of pharmacy business that you are targeting, the business mix that you want, and the opportunity that the acquisition provides.

When we started out, we basically purchased whatever was available so long as the location was where we wanted to be. Now we are much more selective. We choose to stay away from areas with high rent and particularly mall situations where the landlords demand a share of revenue.

If we are able to identify a pharmacy that has a solid base, but has growth potential (either by changing services that are offered or by moving to a better location), then that is ideal. In one recent acquisition we had identified a new site that had the floor traffic to warrant a new pharmacy. We approached the pharmacy that held the agreement. We were able to successfully purchase that business and then establish an agreement with another party to shift the pharmacy. The landlord was so keen to have a pharmacy in his development that we were able to obtain a five month rent-holiday and a major contribution to our fit-out costs. We also were able to lower our entry cost by merging two pharmacies that we own in another city and transferring the fixtures, fittings, and stock from the site that we closed to our new site.

What challenges have you faced along the way and how have you been able to address those challenges?
The biggest challenge is dealing with the issues unique to pharmacies run by owner-operator pharmacists. Inevitably this means that the true costs of the business are not accurately reflected in the financial statements and most owners totally understate the value of their personal commitment to their business. In our business model, we have to assume that if the tap needs fixing, then a plumber will have to be called and paid for their services. If a pharmacist calls in sick, then we cannot expect that another pharmacist will give up their day off and report for work – we need to hire a locum (temporary).

Ultimately this affects the value of the business. When we started out, the price that was asked and that which we paid was generally what the seller needed to fund their retirement. It was stock at cost, plus fixed assets at depreciated book value and “goodwill.” We no longer use this model, but instead have an independent accountant value the business on a multiple of net sustainable earnings. This is where we start the negotiation.

Another frustrating challenge is persuading pharmacists and staff to follow procedures and systems. The issue of professional responsibility and how far we can/should direct pharmacists in this area is one that I struggle with. It frustrates me that so many in our profession seemingly pay lip-service to their professionalism and duty of care, especially when it comes to areas that are designed to protect themselves and their patients from error. I am appalled by the number of times that pharmacists have told me they are simply too busy to follow procedures.

What is your ultimate vision for your own role in your group of pharmacies?
To be able to have them run themselves while I lie on the beaches of the world and have waves of money break over me!!

On a less flippant note, I see my role as working on the businesses rather than in them. I see myself creating the environment for change, which requires me to have an international network of colleagues, travel internationally, be politically active and aware, and be a leader in every sense of the word. My vision for our pharmacies is to instill the change that the pharmacy profession needs on a larger scale.