Oklahoma Bridge Loans and Pharmacy Acquisitions

By Brad MacLiver
Authorship and profile at Google


With the changes in the OK pharmacy industry independent drug store owners, small and regional pharmacy chains in Oklahoma, and pharmacy equity investment groups are acquiring pharmacies to obtain a larger competitive footprint in a geographic area. During the acquisition phase of the business expansion there may be opportunities that require action, which is faster than the traditional funding process.

Bridge Loans are a short-term financing option and are used while waiting for permanent financing, or the next stage of financing to be obtained. Bridge loans provide funding to "bridge" the gap between a company’s current needs and their long term financing requirements.  Permanent financing is generally used to "take out," or pay back, the bridge loan.

One of the characteristics of a bridge loan is that they can close quickly, which in turn allows a company to capitalize on a timely business opportunity, or acquisition. The quick access to money can also allow a business the chance to avoid penalties, bankruptcy, or other temporary problems. 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. It is often the case that bridge loan lenders don’t have the same government regulations to adhere to.  This means they can have more flexibility in their lending criteria and the documentation they require, but less documentation does not mean they won’t perform due diligence to have a level of comfort with the transaction before they fund.

Scenarios of using Bridge Loans in Oklahoma Pharmacy Transactions:

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

2. A small pharmacy chain in Oklahoma requires $1 million for their business to expand. They have 3 new equity investors that will be investing in the firm over a period of 6 months, but each at different intervals.  The business has opportunities that require action before 6 months. The bridge loan closes quickly and allows the Oklahoma pharmacy chain access to the needed funds so they can complete their expansion and increase profits and the money from the 3 new equity investors will pay off the bridge loan.

3. A pharmacy owner in a leased location has the opportunity to acquire a commercial property quickly.  It would be a great Oklahoma pharmacy location, but the property is badly in need of repair. A bridge loan can provide the needed funding to acquire and rehab of the property. Once that is complete, more conventional long term financing can be obtained.

4. An OK pharmacy group developing new pharmacy locations 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 enables the project to move into the construction phase, then qualify for other forms of financing.

5. When a pharmacy is owned by at least two partners and one of the partners is ready to exit the business, a bridge loan helps to ensure both 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 Oklahoma to quickly respond to the opportunity.

When there are business opportunities, buying pharmacies, selling Oklahoma 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 Oklahoma pharmacy bridge loans:

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 the types of deals that require a bridge loan may be considered speculative in nature, or have higher risk factors. Due to this many banks do not offer bridge loans. Banks must meet government regulations and need to justify their lending practices. Riskier bridge loans do not usually fall within the lending parameters of many banks. Therefore a majority of the bridge loans will come from private investment firms.  It is best to consult a company that has access to a number of funding sources who provide bridge loans.

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Acceleration Clauses for Oklahoma Pharmacy Business Loans and Commercial Leases

By Brad MacLiver
Authorship and profile at Google


A provision of many Oklahoma (OK) pharmacy business loans and commercial leases is an acceleration clause. The acceleration clause in the loan/lease agreements allows the lender to accelerate their collection of payments contingent on an event occurring. These events may include lack of payment by the borrower, failure to keep the property adequately insured, failing to pay tax assessments, not maintaining the property, selling the property/asset, etc.
                     
Lenders view the acceleration clause as an important tool in their business loan and commercial lease programs. Loan and lease documents might not specifically address the foreclosure of a property, or repossession of an asset, but this is where the acceleration clause comes into effect. Without this clause, the lender would be able to foreclose on only one missed payment at a time. By having the acceleration clause, the lender can demand immediate and full payment of all remaining balances and fees despite whatever event kicks the clause into gear.

The pharmacy business loan or lease documents provided to the Oklahoma pharmacy owner will describe the rights, obligations, and conditions relevant to the acceleration clause. When the pharmacy owner, the borrower, fails to meet their obligations, the loan or lease then goes into default. A payment that is only one day late can cause a default, which means pharmacy business loans and commercial lease documents should be thoroughly read and understood before signing.

Tips for Oklahoma Pharmacy Owners:1. If a pharmacy’s slowing cash flow is going to cause a business loan default, but the pharmacy owner has additional unencumbered assets they may be able to negotiate with the lender by offering additional collateral.

2. If an Oklahoma pharmacy can catch up on their payments they can reinstate the business loan before the acceleration starts.

3. States have different rules requiring notification of an acceleration clause being exercised. Pharmacy owners should understand the laws in the state where they operate. Lack of knowledge is not an excuse.
                                 
4. When an acceleration clause is exercised on a commercial lease, there is the possibility the landlord cannot collect rent from both the defaulting tenant and a new tenant at the same time. To save themselves some money, OK pharmacy owners should help the process by assisting the landlord re-lease the property. However, please note, should the pharmacy be in the process of being sold and the files and inventory moved to a competitor’s location, the pharmacy buyer will require restrictions in the Purchase and Sale Agreement  that the new tenant cannot be another Oklahoma pharmacy.

5. Lenders prefer not to have to go through the foreclosure process, so if your pharmacy is headed in that direction start talking with the lender about finding a solution. Communication with the lender is a good thing.

6. Some pharmacy business loans and commercial leases require a “personal” guarantee from the business owner. This means that the business owner’s personal assets and credit will become involved in the event of a default. The “corporate” status of the business will not keep the lender from seizing the personal assets.

When considering financing an OK pharmacy for acquisition, or expansion, due diligence and understanding of all aspects of the transaction should be considered. Using the services of a pharmacy industry expert to guide an Oklahoma pharmacy owner through the maze of details will benefit the pharmacy owner in making the best business decision.

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Pharmacy Acquisition Finance in Oklahoma

By Brad MacLiver
Authorship and profile at Google


When an OK pharmacy or drug store is being sold, seldom does the buyer pay “out of pocket” cash for the acquisition. Even when cash is available, Oklahoma pharmacy acquisition strategies usually involve financing the transaction.

Typical acquisitions take 6-9 months to complete, so the pharmacy seller in Oklahoma will need the buyer to provide some proof up front about their ability to close the transaction. Acquisitions will involve many hours of due diligence and negotiation, so the process should involve qualified parties.

Along with the buyer and seller the acquisition will involve attorneys, accountants, lenders, valuation companies, industry specialists, along with others. No one wants to pursue 6-9 months of work involving a variety of highly paid professionals without having some confidence of the pharmacy buyer’s ability to close the deal.

The process will begin with determining the value of the business. There are many companies that offer valuation services. However, pharmacies in Oklahoma are not ice cream stores. There are many aspects of valuing a pharmacy that are unique to the industry, so generic valuations or simple accounting formulas should not be used. An industry specialist should be used for valuing the pharmacies instead of a valuation company that has a broader spectrum.

In order to complete a valuation the selling company needs to provide up-to-date data. Lenders will not accept old data, or a sellers “gut feeling.” Lenders need to make a decision to finance based on sound and verifiable information.                

Structuring the transaction is extremely important. The seller of course wants as much money as possible and wants cash. The buyer needs to spread out the debt service and wants to have as little cash as possible invested in the acquisition.

Pharmacies and drug stores are in an industry where it is more difficult to obtain business loan due to the majority of the value in a Oklahoma pharmacy is the customer files and not hard assets. Therefore, for the acquisition to be financed a lender will need a strong understanding of the industry and what, beyond the collateralized assets, the company offers to reduce the perceived risk.

Oklahoma Pharmacies have typically been known for generating profits and to be stable businesses, but they are typically operate in leased locations.  Also, their furniture, fixtures, and computers will only provide about $15-20,000 worth of collateral to a buyer who is possibly requesting a million dollar loan. Lots of money will be tied up in inventory, but lenders will considers its small pills as easy to move out the door in the event of default. Due to these circumstances many lenders will not loan money to these traditional money making businesses. A successful transaction takes a lender that understands the pharmacy industry.

Here are some additional tips about pharmacy acquisitions and finance in Oklahoma:

1. Attorneys and CPAs that have represented the pharmacy seller for many years could view the transaction as putting themselves in a position of losing a client after the business is sold. Make sure they are working diligently on the transaction and are not slowing or undermining the process.

2. Since OK pharmacy acquisitions involve 6-9 months of work to complete , all parties involved need to be aware of time tables. Much too often, items of importance end up sitting on the desk of someone that is outside of the control of the buyer or seller.

3. All financial information needs to be current. Over the lengthy process the data supplied to both the buyer and the lender will need to be updated on a continuous basis. Things can change drastically during a nine month period and the Oklahoma pharmacy seller will need to continually prove the financial condition of the company.

When pursuing “pharmacy acquisition finance” in Oklahoma, for the best chance of success, make sure the valuation company and the lender have expertise in that industry. Choose a company that has the pharmacy experience and expertise, and is a direct correspondent with lenders who understand pharmacy.

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Pharmacy Industry in Oklahoma: Current Market Conditions

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 OK. These factors are affecting the pharmacy business valuations of pharmacies in Oklahoma and drug stores all across the U.S.

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.

Pharmacists Shortage in Oklahoma:

Oklahoma pharmacies and drug stores across the country have had difficulties in finding pharmacists.  This shortage of pharmacists not only affects employee opportunities it also affects the number of potential independent buyers. 

Fewer Buyers:

There is also a fewer number of corporate buyers. Some of the largest pharmacy chains have been purchased and consolidated in the pharmacy industry roll up in Oklahoma. Many smaller chains have run into financial trouble and have stopped their expansion. It is tougher 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 in Oklahoma is required to get more traffic into a single store.  Simple economics says that when any business has a reduction in profits, they appear less attractive to a buyer and pharmacy business values drop. Various factors contribute to the downward pressure of pharmacy values and there is not any expectation of a turn around. Pharmacy owners should not be fooled by inexperienced Brokers claiming grand outcomes and over stating pharmacy business values not based on realistic market conditions.

With the consolidation of the pharmacy industry that has been happening for several years, many new brokers have entered the market to broker pharmacy acquisitions. Most brokers do not have pharmacy related experience, nor do they use current market conditions when they value an Oklahoma pharmacy. Most are using simple accounting formulas that hold no sound reasoning for the value when faced with current pharmacy market conditions. Due to this many brokers are valuing 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.  However, 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 noticeable amount of OK pharmacy patients as “long-term medications” and require they only purchase the medications from mail order pharmacy companies who provide products at lower prices. This results in local pharmacies not only missing out on prescription sales, but front-end sales will also decline since the customer is not entering the store. Pharmacy mail order sales have now surpassed sales from independent retail pharmacies.

Choose a firm that provides pharmacy business valuations based on real market conditions and does not use a simple formula for calculating the value of an Oklahoma pharmacy. Complex methods are used to derive the value of a pharmacy.

It is best to use a company that specializes in pharmacy and has extensive and current industry data.  Choose pharmacy specialists who have been working in the Oklahoma pharmacy industry long enough to have extensive pharmacy experience and an excellent reputation.  A company with good credentials possesses large amounts of national data.  The largest financial institutions, national chain pharmacies, regional pharmacy chains, independently owned drug stores, and pharmacy equity investment groups use the services of companies fitting this description.

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