Legal expert Tertius Alberts answers some common questions to help inform buyers on one of the more important business decisions they will make…

I have just agreed a price with a seller. So, what happens next? Most buyers will want to ensure that they do not spend time and money negotiating a sale, only to find the seller has also been dealing with another prospective buyer, keeping “two irons in the fire” so to speak.

We therefore suggest in most cases that buyers ask for an exclusivity commitment from the seller for a period of time. In return, a seller will often ask the buyer for a deposit of a proportion of the agreed price The parties then usually agree that the deposit can be refunded to the buyer in certain circumstances (ie, if the seller withdraws from the sale without fair reason or fails to progress the matter within an agree timetable).

A buyer will also want to undertake due diligence into the target pharmacy to confirm that the business conforms to their expectations and any sales information released during the marketing phase. It will also allow a buyer to understand what is required in order to operate the business upon takeover.

This due diligence process is usually undertaken by the buyer’s lawyers and accountants prior to exchange of contracts for the sale.

Choice of purchase vehicle

A buyer of a pharmacy business should consider whether they wish to purchase the business in their personal name(s) or as a company or LLP (particularly if the business being sold is not incorporated).

There are likely to be tax advantages and disadvantages with each approach and this is something upon which advice should be sought at an early stage. In particular, the use of a company by a buyer may simplify borrowing arrangements (though for newly incorporated companies a personal guarantee by the lender will still be expected).

When do I need to approach the NHS?

If the pharmacy is being purchased by way of an asset purchase then both parties must apply for NHS change of ownership consent. The consent can take time to obtain so it is generally recommended that the application be made as early as possible.

This is particularly important if the buyer is a first-time buyer as fitness to practice would also need to be obtained prior to Completion. If the pharmacy is sold by way of a share sale, such consent will not normally be needed (unless, of course, a restructuring of the target group is also expected to take place on completion).

Final transfer of the NHS contract for the pharmacy takes place on the date on which NHS England updates its Pharmaceutical List to include the name of the buyer in respect of the pharmacy. It is important to ensure that the purchase completion date coincides with the date on which the Pharmaceutical List is amended (alongside ensuring that a new ODS code has been issued to the Buyer by the NHS) – otherwise the buyer may not receive the NHS income accruing from the completion date and the seller will remain responsible for the pharmacy’s operation under the terms of the NHS contract.

Whilst buyers and sellers are usually keen to proceed to completion as soon as NHS consent has been granted, it’s worth noting that the NHS now requires a minimum of 30 clear days’ notice of the day on which it should update its Pharmaceutical List.

Do I have any protection from hidden liabilities after the sale has completed?

No matter how detailed a buyer’s due diligence investigation, there is always a risk that the seller has either not disclosed or was not aware of a potential liability (including NHS clawback charges) of the pharmacy, which is only discovered after the sale has completed. A buyer will not wish to be financially responsible for liabilities of the pharmacy relating to an event that occurred during the seller’s period of ownership.

This situation should be dealt with by the sale contract (containing warranties and indemnities from the seller to cover the position). When purchasing a pharmacy by way of share acquisition (as opposed to buying the assets of the business from the seller) particular care should be taken within the sale contract as there is greater potential risk exposure to buyers.

Whilst under an asset sale the majority of the liabilities of the pharmacy would not transfer to a buyer, with a share sale the buyer will assume all liabilities of the target company on completion (in particular any historical failing in respect of taxation).

If a potential liability is discovered during the sale negotiation itself, in addition to seeking indemnity cover, a buyer may consider reducing or holding back a proportion of the price to meet potential warranty claims or contingent costs (commonly known as a “retention”).

The above is a general overview and we recommend that independent legal advice is sought for your specific concerns. If you require further information in relation to the points raised in this article, you should contact Tertius Alberts who is a solicitor and associate in the healthcare transactions team at Charles Russell Speechlys LLP.  He can be contacted at tertius.alberts@crsblaw.com