Funding to buy your first branch, or to add to an existing portfolio.
How a pharmacy is valued for lending
A pharmacy is generally assessed on a multiple of EBITDA together with the value of its NHS or Health and Social Care contract income. The contract is central: it is what makes the business lendable in the first place.
Where in the range a branch falls depends heavily on the balance between dispensing volume and services income, prescription numbers and their trend, and the local competitive position.
Our guide to pharmacy valuation covers this in more detail.
The adjustment that moves the number
Most of the negotiation happens in the adjustment rather than the multiple. EBITDA is normalised to show what the business produces under new ownership, which means stripping out anything that will not continue and putting in the real cost of anything the outgoing owner was doing for free.
The biggest single item is usually the owner’s own clinical work. An owner acting as the responsible pharmacist six days a week on modest drawings is subsidising the profit figure. A valuer replaces that with the cost of employing a pharmacist at the local market rate, and prevailing locum rates in the area feed straight into it. The adjusted figure can look very different from the one in the accounts.
Understand which basis a price has been struck on before you commit to it. Deals reprice at this stage more often than at valuation.
Where the prescriptions come from
Underwriters look past turnover to monthly item volume, and then to where those items originate. A branch drawing most of its prescriptions from a single nearby surgery is a different credit proposition to one serving a spread of prescribers, even where the accounts are identical.
That concentration is the risk lenders price. Falling volume usually signals something structural rather than a soft patch: a surgery closing, relocating or merging, a new pharmacy opening in the catchment, or a prescriber beginning to dispense.
Before you bid, establish what proportion of items come from one prescriber and whether that surgery has any plans to move or merge. It is a question the lender will ask, and it is better answered by you than discovered by them.
Share purchase or asset purchase
Acquisitions are structured either as a share purchase, where you buy the company holding the contract, or as an asset purchase of the trading business. The route changes the tax position, the warranties you receive and how the contract transfers.
Settle it with your accountant and solicitor before the funding is arranged rather than after. Lenders assess the two differently, and switching structure late in a transaction usually means going back to the start of the credit process.
What lenders will want
- Three years of accounts plus current management figures
- Prescription volumes and their trend, month by month rather than annually
- The split between dispensing, services and retail income
- Contract details and any conditions attached
- Details of the premises: freehold, or the lease terms if leasehold
- Your own position: pharmacist registration, management experience, deposit available
Why lenders scrutinise pharmacy carefully
Pharmacy remains a sector lenders understand and want to lend to. It is also one where contractual frameworks change, and lenders watch those changes closely.
The practical consequence is that a proposal which does not address contract stability and income mix directly will struggle, however good the numbers look. Where your income sits between dispensing and services matters to the assessment, and so does what happens to it if the framework shifts.
Freehold or leasehold
Leasehold acquisitions are common and entirely fundable. The lease terms then form part of the assessment, and a short unexpired term is a genuine obstacle worth addressing with the landlord before you go to market rather than after terms are agreed.
Where the freehold is included, it is funded separately from the business itself, on different terms. See pharmacy commercial mortgages.
Buying several branches in one transaction changes the structure again. See pharmacy portfolio acquisition.
Stock and the first quarter
Stock is the item buyers most often forget to fund. It is counted and valued on completion day and paid for separately from the purchase price, and in a busy branch it is a material sum. It does not usually sit inside the acquisition facility, so it has to come from cash or a separate working capital line.
There is a second gap immediately after completion. Payment for dispensing runs on a defined cycle, so there is a period where you are buying stock and meeting payroll before the first payment lands. Buyers who have modelled the loan repayment but not that timing find the first quarter uncomfortable.
Arranging a pharmacy working capital facility alongside the acquisition is the usual answer, agreed at the same time rather than requested three months later once the pattern is already visible to the lender.
The unsecured route
Unsecured professions lending that covers pharmacy typically runs from around £30,000 to £500,000, with some growth facilities up to £2m, at rates from around 8% and with no property security. For a smaller acquisition, or to fund the deposit on a larger one, it is worth modelling against a secured structure.
Our guide to professions loans explains how these facilities work, and the practice loan calculator gives an indicative repayment figure.
Common questions
How much deposit will I need?
It depends on the valuation basis, the strength of the contract income and your own experience. Lenders in this sector are constructive with well-prepared cases, and a first-time buyer with relevant management experience is a fundable proposition.
If you intend to raise the deposit against your own home, that borrowing is a regulated residential mortgage. We do not arrange it; you would need an FCA-authorised mortgage adviser for that part.
Is stock included in the purchase price?
Usually not. Stock is valued on completion day and paid for separately, and in a busy branch it is a significant sum. It is not normally covered by the acquisition facility, so plan for it from cash or a working capital line arranged at the same time.
Do I need to be the responsible pharmacist?
Not necessarily, but lenders will want to understand the management structure and who is accountable clinically. A non-pharmacist owner needs a credible answer on that.
What if the contract framework changes?
It is a fair question and lenders ask it too. A proposal that acknowledges the risk and shows the branch would still service the borrowing under a less favourable scenario is far stronger than one that assumes continuity.
All figures are indicative and subject to lender assessment, your circumstances, valuation and prevailing market conditions. Commercial mortgages and unregulated bridging loans are not regulated by the Financial Conduct Authority. Property offered as security may be at risk if you do not keep up repayments.