Pharmacy - Syndication, A business transition model for Pharmacists
Most pharmacists are well aware of the need to develop a succession plan for their business but have limited understanding of available succession planning options. Wholesalers, industry associations and professional advisers need to proactively participate in the planning process if the industry is to overcome the challenges arising from the growing demand for effective succession planning.
For pharmacists preferring not to sell and wanting to spend more time doing the things they enjoy, a staged exit from their business is an attractive alternative to selling. It provides a lifestyle option to a pharmacist whereby they can retire at their own pace without the immediate shock of an abrupt retirement. They remain working on the business at a strategic rather than operational level with less time on paper work and backoffice administration. They participate in building corporate vision by pooling industry knowledge and experiences.
Syndication is a business transition model offering a staged exit to pharmacists. It combines pharmacies within a co-operative corporate group where the best features of independent business ownership are captured and combined with best practice management and administration, thereby providing improved efficiency and marketing. This of course leads to increased professionalism and growth within the businesses. Here is an example of pharmacists pooling their businesses.
It provides a tax effective succession planning vehicle to realise capital over a period of time. There is an immediate cash component (50%) and diversification of ownership risk. At the same time the pharmacist can retain an interest in their pharmacy as well as an interest in the syndicate. The remaining ownership interests can be realised at a later date and usually at a higher exit price.
As the syndicate entity has an interest in a group of pharmacies it can introduce systems to improve operational performance and financial reporting via an associated management company. Syndicate members are encouraged to adopt best practice standards and this is supported by a syndicate compliance program.
Standardised systems allow access to timely and accurate information providing better business management and financial reporting. Management resources can be directed within the group to fix “hot spots” and human resources can be managed more efincluding locum support. The syndication concept provides the opportunity for young pharmacists (“future successors”) to become financially involved in the business on a structured entry program with the ability to acquire an interest in the business over a period of time. Incentives are provided to grow future value and future successors can leverage off the growth in value to self fund their entry. This secures their commitment and the self-funded acquisition removes a major barrier for future successors - funding their entry. This of course meets the needs of budding owners and brings fresh new enthusiasm into
the businesses.
Pharmacy profitability improves as the management company is able to negotiate a range of volume based incentives on behalf of its pharmacists. More volume means better buying, marketing and brand incentives. The management company provides wholesale support to the syndicate entities.
The syndication process commences with potential members participating in a planning process to form a group of like minded people. Ideally there is a common bond (industry, brand, geography, age, family, risk profile etc) that brings everybody together. The initial planning process is integral to the future success of the syndicate. It ensures everybody is in a position to make an informed decision and consensus is reached. Once
there is an agreement in principle, a plan is tailored for the participating pharmacies. The syndication plan covers structure, better business services, management, valuation, funding, governance policies and owners position. The most likely deal breakers include loss of control, systems compliance and business valuation.
If a decision is made to proceed policies are drafted, systems aligned and agreements signed.
Some owners prefer a soft entry approach to syndication by initially accessing the best practice and administration systems offered by the management company. Others embrace the concept immediately. Usually there has been a triggering event (age, health, no successor) that causes a pharmacist to want to participate. The syndicate concept as it offers a win-win situation for brand groups and their
customers. The benefit to the brand groups includes recruitment of high quality pharmacists, a structured program to rationalise customer numbers, common business management systems and entry/exit strategies for current and future owners.