In this article, we highlight some of the legal and commercial issues that can influence value, timing and deal certainty in a pharmacy sale or acquisition.
Structure of the deal
One of the earliest and most important decisions is how the transaction will be structured. Whether a deal proceeds by way of asset sale/purchase or share sale/purchase will affect tax, risk allocation, regulatory steps and timing. Getting this right early can have a material impact on the shape and pace of the deal.
There are two principal deal structures:
- Share sale: The buyer acquires the shares in the company that owns the pharmacy, inheriting the entire business, including its assets, contracts and liabilities.
- Asset (business) sale: The buyer purchases selected assets of the pharmacy business, typically leaving historic liabilities with the seller.
The right structure will depend on the priorities of the buyer and seller. In our experience, pharmacy transactions in Scotland are most commonly structured as share sales, often driven by the seller’s tax position. Asset sales are more often used where group structuring is a factor, for example where an operator is disposing of individual pharmacies within a wider portfolio.
In practice, share sales are often operationally simpler because the NHS contract, employees and trading arrangements remain in place. That simplicity is, however, balanced against the buyer taking on historic risk. Asset sales can offer a cleaner risk profile for a buyer, but they typically involve greater complexity, including the transfer of NHS and other contracts, employees and property interests.
Heads of Terms
Once headline commercial terms are agreed, the parties will usually enter into heads of terms. While largely non-binding, this document sets the framework for the transaction.
Agreeing the key commercial and legal points early can reduce friction later in the process and help preserve momentum.
Heads of terms will typically address:
- Deal structure
- Purchase price (including treatment of stock and working capital)
- Payment structure
- Non-compete restrictions following completion
- Exclusivity arrangements
Regulatory Considerations
Continuity of the NHS contract is critical to a successful pharmacy transaction.
- In a share sale, the legal entity holding the contract does not change, and the NHS contract typically remains in place (although you must notify the relevant NHS Board after completion of any director or superintendent pharmacist changes).
- In an asset sale, the NHS contract will require transfer via a formal application process where a new NHS contractor code will be issued to the buying entity. This must be aligned with the proposed completion date, and delays can directly impact transaction timing.
In both structures, the buyer will need to engage with the General Pharmaceutical Council in respect of changes in ownership, control and governance.
Funding
Funding arrangements are frequently a key driver of transaction timing.
For buyers, lenders will typically require independent valuations before issuing final credit approval. They may also impose requirements in relation to property leases, including a minimum unexpired term. Early engagement is therefore essential to keep funding aligned with the transaction timetable.
For sellers, where an existing funder holds security over the business, early engagement to agree release and repayment arrangements is equally important to avoid delays.
Legal Due Diligence
Due diligence enables the buyer to identify risks and informs both pricing and the allocation of risk in the sale agreement.
The scope of legal due diligence will depend on the structure of the deal and the buyer’s appetite for risk. The key point is that it should be proportionate, focused and aligned with the issues that matter most to the transaction.
Diligence should be tailored to ensure that it covers:
- Controlled drugs compliance
- Locum arrangements
- Any ongoing regulatory investigations
- Sponsor licences (which do not automatically transfer)
Property
Property issues are among the most common causes of delay when they are not addressed early.
The key issues will depend on the transaction structure:
- Share sale
- Where the business operates from leased premises, the lease should be reviewed to identify any consent requirements triggered by a change of ownership or control
- Where the property is owned by the seller (or a connected party), agreement will be needed on whether the property is to be transferred or retained as an investment asset and leased to the buyer, and on what commercial terms.
- Asset sale
- An assignation of any leasehold interest will be required, typically subject to landlord consent. The timing, conditions and potential costs of that consent can be a key driver of the transaction timetable.
Property issues can affect both timing and deal structure, particularly where third-party consents or lease arrangements are involved.
Employees and TUPE
In a share sale, employees will generally remain employed by the same company. In an asset sale, employees will transfer under TUPE, which imposes obligations on both buyer and seller.
If TUPE applies, early engagement between buyer and seller is important to agree a process and timetable for employee communication and consultation. That process can affect both timing and the structure of the sale agreement.
Warranties
Warranties and indemnities contained in the sale agreement are a key element of risk allocation in business sale or acquisition and pharmacy transactions are no different.
In share sales in particular, warranty protection is typically broader to reflect the transfer of historic liabilities to the buyer.
A seller's liability for any claims under the warranties and/or indemnities will usually be subject to negotiated limits, including financial caps, time limits and minimum claim thresholds.
For sellers, a well-prepared disclosure exercise is one of the most effective ways to manage post-completion exposure.
Final Thoughts
Buying or selling a pharmacy brings together corporate, regulatory, property and employment issues. Early preparation and the right advisory team can make a material difference to value, timing and execution.
At MFMac, we advise buyers and sellers across the pharmacy sector on transactions where timing, structure and risk all need careful handling. If you are considering a sale or acquisition, getting advice at the right stage can make a real difference.
This article was co‑authored by Courtney Evison, Trainee Solicitor.