At AP Group we believe it is best practice to have listings supported by a Valuation Report, or ‘Indicative Valuation’ Report, from an accredited pharmacy valuer.
Occasionally, due to the thorough process of having a Valuation completed, people will query the rationale behind this approach.
Basically, there are two key reasons for this. Firstly, the Valuation will always influence the sale price at some point in the transaction. Secondly, “broker’s numbers” are often not as accurate as an independent valuation and are therefore not as trusted by the market.
In the vast majority of cases, the purchaser will require finance approval in order to reach settlement. Banks will not loan against the numbers that the broker has produced for the listing. They will only loan against a Valuation from an accredited Pharmacy Valuer (or the sale price if it is lower than the Valuation).
A broker who goes to market without a Valuation may be able to convince a purchaser to sign an offer at price $X. However, when it comes time to obtain a Valuation on the business for the purchaser’s loan application, if that Valuation comes back unexpectedly low then one of two things tend to happen – either the purchaser will try to renegotiate the price, or they will seek to withdraw from the deal entirely as they have not been able to secure the necessary funding.
When settlement fails, not only do you have to start the process again, but you generally end up selling for less on the second or third time around.
This is why it is always better to know where the Valuation/banks will sit at the start of the sale process. That way both the vendor and purchaser can submit and consider offers from an informed position, taking into account the purchaser’s borrowing capacity and their ability to complete the transaction.
Importantly, this does not mean that pharmacies always need to sell at Valuation level. In fact, many of our listings sell ‘above Valuation’ due to the intense market competition that our system has created. However, the party that is offering a premium above Valuation level is doing so with this crucial information at hand, therefore reducing the chance of future settlement failure or price renegotiation.
The other key consideration is ‘trust’ or ‘credibility’. Brokers completing their own financial analysis to determine the EBITDA/FME of the business they have listed can be a dubious practice. It is not uncommon to see all kinds of questionable adjustments or ‘add backs’ in these calculations, which are designed to make businesses performance look better than they actually are. Frankly, many buyers don’t trust this kind of practice, and rightly so.
Hence why we leave this work to the experts. We obtain a Valuation or Indicative Valuation Report from one of our Valuer partners like Rose Health or Pitcher Pharmacy, experienced and respected industry Valuers whose Reports are accepted by every major bank in Australia.
Our buyers can then assess with confidence that a credible third-party has methodically reviewed the trading data and arrived a figure that can form the basis of a loan application. This transparent approach has built trust within the marketplace, creating more demand for our listings and better sale outcomes for our clients as a result.
At AP Group we place great emphasis on not only negotiating a great sale price, but facilitating and guiding our vendors through a sale that is actually going to complete on the terms that were initially agreed between the parties.
Written by Will Brown, VIC & TAS Sales Manager – AP Group
AP Group are the leading pharmacy experts in Australia, helping hundreds of pharmacists into ownership every year – our team can help with sourcing finance for your purchase, as well as providing the right legal advice to help you navigate the process.
We connect existing pharmacy owners with over 5000 ready and eager investors via our cutting-edge online Data Room. Our Data Room keeps confidential listing data secure and allows buyers to make informed decisions on each of our pharmacies for sale.
About the Author:
Will Brown always seems to bring a good mood to the AP Group office. So, perhaps it’s no surprise he’s so positive and pro-active at helping clients with buying, selling, and negotiating pharmacy transactions. In more recent years, he’s added lease negotiations to his offerings, complementing his genuine love for helping pharmacists achieve their goals.
Will understands that pharmacy sales is all about people. Luckily for him, he’s been described as approachable, transparent, reliable and responsive. In his early career, he worked as an English Teacher and Journalist, giving him exceptional communication skills and the ability to present data in its most clear and meaningful form. An asset to negotiations and the AP Group team!