Pharmacy Owners Guide To Exit Strategies Presented by: Guy W. Stillwell, R.Ph. Pharmacy Consulting Associates, Inc. PCA .

Pharmacy Owner’s Guide To Exit Strategies

Presented by:

Guy W. Stillwell, R.Ph.Pharmacy Consulting Associates, Inc.

PCAwww.pcapartners.com

Disclosures

Stock Holder: PCA-Pharmacy Consulting Associates, Inc. / President

Program Outline

Market Trends

Timing Considerations

Market Valuation

Potential Buyers

Preparing To Market Your Pharmacy

Professional Resources

Owner Financing/ Junior Partnership

The Selling Process

Market TrendsIs Independent Pharmacy Strong Again?

1985-1998 : Independent Pharmacy decreased by 8,000 units

1999-2005 : Independent Pharmacy decreased by 1,700 units

2004-2006 : Independent Pharmacy decreased by 900 units

2007-2009: Independent Pharmacy decreased by 770 units

The strength of Independent Ownership

Market TrendsTransfer of Ownership

Pharmacists are becoming more interested in ownership.

Chain file buys are no longer your only option.

Metro community pharmacy owners are challenged by not having full access to buyers.

Are smaller community pharmacies able to attract young healthcare professionals?

Market TrendsWhere are we today?

Independent Pharmacy Projections for 2010

Metro vs. Rural Trends

The Future Pharmacy Market Values

Timing ConsiderationsThe 5-10 Year Planning Process

Potential Buyers Junior Partner Key Employee

Lease Terms Corporate Structure

C-Corp S-Corp

Timing ConsiderationsThe 3-5 Year Planning Process

Financial Metrics Balance Sheet P&L Cash Flow

Market Valuation Industry Valuation Metrics Cash Flow Analysis Buyer’s ROIC/ROCC Obtain Expert Advice

Timing ConsiderationsThe 3-5 Year Planning Process

Operational Factors Affecting Market Value Private Charging Unit Dose Packaging Delivery Service Niche Services

Compounding DME Specialty Pharmacy Nursing Home

Timing ConsiderationsThe One Year Planning Process

Market Valuation Identify Buyers

Exception: JP Program needs to be established 5-10 years prior to transfer date

Obtain Expert Advice Accountant Legal Counsel Business Consultant specializing in Pharmacy

acquisitions and mergers (The buy/sell process)

The Market Valuation What is My Pharmacy Worth?

Industry Metrics $/Rx plus Inventory

Range: $0-$30/Rx Multiple of Net Income

Range: 0-5x Net Income % of Sales plus Inventory

Range: 0%-40% of Total Sales

The Market Valuation What is My Pharmacy Worth?

Why the Metrics Do Not Work Ranges are Variable Standard Metrics are Unreliable Lack Specific Market and Pharmacy Data

How to Understand the Metric Values for Your Pharmacy Know the Market Engage Expert Pharmacy Appraisal Consultant

The Market Valuation What is My Pharmacy Worth?

Buyer’s Perspective Continuation of Business

Cash Flow ROIC/ROCC Financing

File Purchase Retention Operational Blending ROIC

Potential BuyersIdentify all Buyers in the Market

Key Employees Local Independents Regional Independents Independent Pharmacy Investors Chain Pharmacies Specialty Pharmacy Operations

Potential BuyersEngaging All Your Buyer Resources

Explore all of your options

Strategically weigh the pros and cons Independent

Chains

Preparing To Market Your PharmacyProtecting your Business and Maximizing Value

Confidentiality and Non-Disclosure Agreements

Providing Documentation-The Presentation Notification of Staff, Family, and Friends Engage Expert Assistance

Professional Resources

Legal Counsel Accountant

Limited Knowledge Regarding Pharmacies Business Consultant

Expert on Pharmacy Valuation Increases Potential Buyer Pool Minimizes Your Worry – Manage Entire

Process Maximizes Your Value – Expert Negotiations

The Selling ProcessCritical Steps in Maximizing Your Value

Strategically Provide Documentation based on Buyer’s Due Diligence Only provide exactly what is requested Obtain LOI prior to full disclosure Understand Buyer’s operation, needs, and

expectations Understand Buyer’s financial position Does Buyer’s financial position facilitate sale

The Selling ProcessCritical Steps in Maximizing Your Value

The Asset Purchase Agreement (APA) Stock Sale vs. Asset Sale Asset Allocation “Going Concern” vs. “File Buy” Lease Assignment or Restrictions Prescription Retention Holdbacks UCC (Liens) Filings

The Selling ProcessCritical Steps in Maximizing Your Value

The Non-Compete Agreement Determination of Restrictions

Term Geographic Radius Seller’s Plans

Determination of Value Corporate Structure Paid to Seller Personally Tax Concerns

The Selling ProcessFinal Steps

Preparing for the Closing Date Removal of Buyer’s Contingencies Regulatory Notifications

BOP DEA Medicaid Medicare

Inventory Dating Inventory Level

Owner Financing/Junior PartnershipIs Owner Financing for Me?

Owner Financing Security Positions

Bank is always first Personal Guarantees & Cross Collateral

Risks Default

Benefits Increases Potential Buyers Possible Tax Benefits Provides “Bridge Financing” to Bank Loans

Owner Financing/Junior PartnershipIs a Junior Partnership Right for Me?

Junior Partnership Tax Advantages Available Programs Key Employee

Confidence Trust Ability

Questions and Answers

Additional Questions

Contact Information:

Guy Stillwell, R.Ph.

(651) 270-0038

or

[email protected]