Background
Partners, David and Annabelle owned a pharmacy in regional Australia. For some years, David had been planning his retirement following the introduction of Brenton, a younger partner a few years ago. Brenton quickly gained David’s and Annabelle’s confidence and was handed the day-to-day operations and management of the pharmacy, and the business thrived. They soon employed Jess, a young energetic pharmacist who was a great cultural fit with a ‘can do’ attitude. So, the idea of bringing her into the business ownership structure brought an opportunity for David to step into retirement sooner than expected.
With a new vision from Annabelle, the pharmacy made a bold move to change trading banners and move to the newly released WholeLife banner and business model. With Brenton leading the implementation, it introduced a new approach to health and wellbeing to complement their reputation and experience, and build closer customer relationships with an additional range of services. Jess had been integral in transitioning to this new model, embracing the new approach and opportunities it attracted.
All three Partners are clients of Holman Hodge, including the pharmacy business. There were three key challenges involved in onboarding Jess as a new partner and exiting David out of the business. They included:
- Ensuring the pharmacy was valued fairly
- Managing expectations and perceived conflicts as sole adviser
- Structuring and timing of the sale.
Solution
Pharmacy valuation
Agreeing a fair price required an open and transparent approach. Whilst Jess played a key role when the business transitioned to the WholeLife brand, she was instrumental with its success and was cautious about not paying too much, considering the value Jess had created.
For David, his goals were a little different. He was moving into retirement and had financial and lifestyle goals he needed to achieve, hence David needed to maximise his exit value.
To balance these goals and manage expectations, it was agreed as a starting point the pharmacy would be valued by an independent valuer. From there, we also undertook our own valuation for comparison and prepared various ‘what if scenarios’ which ultimately enabled both parties to eventually settle on a fair price. The considerations in agreeing on a fair price included:
- The recent transition to the WholeLife brand and the resulting growth potential
- Past business performance
- Location of the pharmacy and local competition
- Jess’ contribution in making the WholeLife model work for the pharmacy
- The broader market conditions and market demand
- Recent pharmacy transactions and outcomes in particular external vs internal sales.
Managing relationships, expectations and perceived conflicts
Once the decision to offer Jess partnership was made, we needed to ensure the two main negotiating parties, David and Jess, each received non-biased advice and equally important that we were seen to act in their best interest. In addition, we were conscious our advice remained impartial. David had been a longtime client of our Pharmacy Lead Director, Frank Morgante. Although Jess was not a client at the initial stage, she quickly acknowledged the high level of expertise we demonstrated and soon become comfortable enough to engage us. The Partners had also been gradually bringing Jess into the pharmacy management meetings over time, so that she was across the detail and decision making, in preparation for ownership. To manage perceived conflicts of interest and equity, we:
- Formalised the relationship and made it clear to our teams and our clients from the outset how we would be transacting including the steps required, ensuring our advice always remained impartial.
- Did not share confidential information from personal discussions with our own clients.
- Ensured transparency in the valuation process, the serviceability of debt, and pharmacy drawings to service the loan and partner equity.
- Provided transparent, detailed financial forecasts, explaining the rationale behind them.
Jess appreciated the time we spent together, going through the valuation, the serviceability of her loan, and what she was effectively purchasing, while David was assured that the price reflected his contribution to building and growing the business to date.
“Jacob at Holman Hodge was my direct contact throughout the buy-in process. Purchasing a share in the pharmacy was a new experience for me and did feel overwhelming at times. Throughout the journey, I appreciated Jacob and Frank’s expertise and patience as they guided and explained details in an easy-to-understand manner. Jacob was my main point of contact and was always readily available and happy to help with any questions, of which there were many! I look forward to continuing to work with Frank and Jacob in the future with both the business and my personal finances.”
Jess, new pharmacy owner
Structuring and timing of the sale
To support Jess in attaining the right ownership structure, we set up a new entity to hold her business interest and supported her with the right contacts and advice including through the financing process with the introduction of Tanya, a finance broker.
Timing and tax planning was also important to meet both parties’ needs. Aligning the transaction with the end of the financial year meant reliance on the one set of financial reports which saved time and costs. This also allowed the distributions to be more aligned to the quarter, so the settlement was completed by the end of September.
Frank also ensured that David had appropriate advice so that his financial goals were met, and he could exit the business debt free.
The end game
The outcome was a successful business transaction where both parties felt confident in the business sale process, but more importantly, both parties felt it was a win-win. Both parties were pleased that Frank and I were always available to answer their questions and act quickly on their behalf. We helped Jess to achieve a confident buy in and we know that David is relaxed and happy, enjoying his retirement in Queensland.
“We are very grateful for the professionalism and expertise provided by Jacob and Frank at Holman Hodge Accountants for their assistance facilitating a share sale between an outgoing and incoming business partner. Their guidance was clear, professional, and gave us complete confidence every step of the way. We particularly appreciated their ability to present solutions to unforeseen problems during the process. We truly value their partnership and look forward to continuing to work together.”
Brenton, pharmacy owner
About the author
Jacob Prestia is a Manager at Holman Hodge. He understands that his work with pharmacy clients encompasses much more than just the figures presented in compliance and management reports. He fosters personal relationships that extend to providing advisory services on critical matters such as restructures, cash flow management, and transactions, in addition to supporting clients in areas like property ownership, syndication, and development.