Pharmacy Acquisitions and Bridge Loans in Maine

By Brad MacLiver
Authorship and profile at Google


With the changes in the Maine (ME) pharmacy industry independent drug store owners, small and regional pharmacy chains, and pharmacy equity investment groups are acquiring pharmacies in Maine to obtain a larger competitive footprint in a geographic area. During the acquisition phase of business expansion there could be opportunities that require action that needs to be faster than the traditional funding process.
              
Bridge Loans are a form of short-term financing that is used while waiting for permanent financing or while the next stage of financing to be obtained. Bridge loans provide the funding to "bridge" the gap between a company’s current needs and their requirements for long term financing.  Permanent financing is commonly used to "take out" (or pay back) bridge loans.

One characteristics of bridge loans are that they are able to close quickly.  This in turn allows companies to capitalize on a timely business opportunities or acquisitions. This quick access to money can also permits businesses the chance to avoid penalties, other temporary problems, and bankruptcy. If longer term issues need to be dealt with, this “transitional financing” provides the company time until longer term financing can be secured.

Another characteristic of bridge loans is that the process usually requires less documentation than conventional financing. Bridge loan lenders don’t usually have the same government regulations to adhere to, so they tend to have more flexibility in their lending criteria and the documentation they require. However, less documentation does not mean they won’t perform due diligence to have a comfort level with the transaction before they fund.

Examples of using Bridge Loans in Maine Pharmacy Transactions:

1. An independent pharmacy owner learns of health issues and decides to quickly sell the family owned ME pharmacy to an employee or local competitor. Traditional financing for the pharmacy buyer may require a time line that is not acceptable when considering the circumstances. A bridge loan can be used to quickly accomplish the transaction.

2. A small pharmacy chain needs $1 million to expand their business. They have 3 new equity investors who will be investing in the firm over the next 6 months, but at different intervals. However, the business has opportunities which require action sooner than 6 months. The quick closing bridge loan allows the pharmacy chain in Maine access to the needed funds so they can complete their expansion and increase profits. Money from the 3 new equity investors will pay off the bridge loan.

3. A ME pharmacy owner in a leased location has an opportunity to quickly acquire a commercial property that would be a great Maine pharmacy location, but the property is in disrepair. A bridge loan provides the needed funds to acquire and rehab of the property and once that is complete conventional long term financing can be obtained.

4. A pharmacy group developing new pharmacy locations in Maine can receive bridge loan funding to get through the permitting process of a project when conventional financing isn’t available at this early stage due to there is still too much risk. A bridge loan allows the project to move into the construction phase and then qualify for other forms of financing.

5. When a pharmacy is owned by two or more partners and one of the partners is ready to exit the business, a bridge loan can help ensure the cash flow and uninterrupted operation of the business during the partner buyout.

6. Real estate, or equipment bought at auction may have a narrow window for closing the deal and timing of traditional financing would keep the buyer from proceeding with the opportunity. Benefits of a bridge loan will permit the pharmacy owner to quickly respond to the opportunity.

When there are business opportunities, buying Maine pharmacies, selling ME pharmacies, quick deadlines, an old loan maturing before a new loan can be put in place, funding needs during the permit, planning, or evaluating stages, etc., bridge loans can be an essential financial tool.

Tips regarding pharmacy bridge loans in ME:                        

1. Bridge loans are quick to obtain, but quick to expire.

2. A bridge loan is similar to a hard money loan and the terms are often used interchangeably in conversations. Both are short-term, higher interest rate, non-standard loans, but in some circles hard money refers to the lending source and a bridge loan refers to the duration of the loan.

3. Because bridge loans usually come with higher interest rates than traditional financing a larger down payment, meaning a lower Loan to Value (LTV) and a lower level of risk and provides an opportunity for lower interest rates.

4. With the shorter time period of bridge loans borrowers will need to be aware that fees for valuations, legal, dues diligence, etc., will be amortized over a shorter period than traditional financing transactions.

Understand that the types of deals which require a bridge loan may be considered speculative in nature or have higher risk factors. Many banks do not offer bridge loans because of it. Banks are required to meet government regulations and they need to justify their lending practices. Riskier bridge loans do not usually fall within the many banks' lending parameters. A majority of the bridge loans will therefore come from private investment firms.  It is best to consult with a company who has access to a number of funding sources who provide bridge loans.

************************
 

Pharmacy Industry: Current Market Conditions in Maine

By Brad MacLiver
Authorship and profile at Google


Currently there are a number of factors that are impacting the current market conditions of the U.S. pharmacy industry in ME. These factors are affecting the pharmacy business valuations of pharmacies in Maine and drug stores all across the U.S. Any pharmacy owner considering either buying a pharmacy or selling the drug store should take the following points into consideration.

Local demographics:

The valuation process also includes local market conditions and local demographics. Smaller communities have less growth potential and with the declining profits a buyer will need to purchase at a lower value because they will have to service the debt from a business loan and still try to make a living. The same is true for communities that have lost population due to economic conditions, or have a high rate of unemployment. Fewer people, or fewer customers with the ability to purchase, will mean fewer sales and less chance of any substantial improvement in the near term. This results in a lower pharmacy business value.

Fewer Buyers:

There are also fewer corporate buyers. Some of the largest pharmacy chains have been purchased and consolidated in the pharmacy industry roll up. Many smaller chains have run into financial difficulties and have stopped their expansion. It is more difficult to drive a price higher when there are fewer willing, or capable, to purchase.

Current Market Conditions Requires Industry Roll-up:

The consolidation of the pharmacy industry is required to get more traffic into a single store.  Due to simple economics, when any business has a reduction in profits they are less attractive to a buyer and pharmacy business values drop. There are many factors contributing to the downward pressure of pharmacy values and there is not any expectation of a turn around. Pharmacy owners in Maine should not be fooled by inexperienced Brokers claiming grand outcomes and over stating pharmacy business values not based on realistic market conditions.

The consolidation of the pharmacy industry has been happening for several years, and many new brokers have entered the market to broker pharmacy acquisitions. Most brokers do not have any pharmacy experience and they do not rely on current market conditions when they value a pharmacy. Most use simple accounting formulas that hold no sound reasoning for value when faced with current Maine pharmacy market conditions. Because of this, many brokers will value pharmacies 2 to 3 times more than what the market is really willing to pay. Any inexperienced person can quote a high value to capture a listing, but that does not mean the over inflated asking price is what the business will actually sell for.

Mail Order:

Some insurance companies are designating a significant amount of pharmacy patients as “long-term medications” and will require that they purchase only medications from mail order pharmacy companies who provide products at lower prices. The result for local pharmacies is that they are not only missing out on prescription sales, but their front-end sales will also decline since the customer is not entering the store. Pharmacy mail order sales in ME have now surpassed sales from independent retail pharmacies.

************************