ALBAPHARMPHARMACY

ACQUISITION ASSISTANCE PACKAGE

STRATEGIC PARTNERS

• LEGAL - Holmes Mackillop LLP - Steve Williamson

• ACCOUNTING – Campbell Dallas LLP – Peter Gallanagh

• FINANCIAL – Statim Finance Unichem Customer

Finance

THE CONTEXT

• Maintain strong Independent Sector to challenge Multiples

• Financial constraints – difficult for young Pharmacists to enter the market

• Credit Crunch is a further threat – but also a good opportunity for AlbaPharm

• An excellent Investment Opportunity for AlbaPharm and Private Investors

THE CONCEPT

• Close the Funding Gap• Tax breaks benefit the Investor and the

Pharmacist• Mentoring and business support to create new

profitable AlbaPharm Members• AlbaPharm retains element of control until

viability established • Investment Panel reviews each case • Looking for businesses with good growth

potential

THE BENEFITS

• Investors get good return on investment

• Pharmacists acquire a business they could not obtain without support of AlbaPharm

• AlbaPharm supports new business entrants, maintains independent sector and builds/retains Members

• WIN – WIN -WIN

FRAMEWORK

ALBAPHARM(AAH/UNICHEM)

OP 1 OP 2 OP 3

PI

Dividend

Dividend out Shareholders

AlbapharmP1APBank/Suppliers Guarantee

Funders

Shareholders

Operating Pharmacies

AP P1Albapharm

KeyOP means Operating PharmacyAP means Acquiring Pharmacist PI means Private Investor

• THE PURCHASE• 1. PROPOSITION TO ACQUIRE • 2. PROPOSAL VETTED • 3. COMMERCIAL FUNDING IN PRINCIPLE• 4. READY TO OFFER.

• STEPHEN WILLIAMSON • PARTNER • FOR HOLMES MACKILLOP LLP• 35 WILLIAM STREET, JOHNSTONE, PA5 8DR • TEL: 01505 322244• Also at: 109 Douglas Street, Blythswood Square, Glasgow,

G2 4HB Tel: 0141 226 4942

• OPERATING PHARMACY• 1. INCORPORATION OF OPERATING PHARMACY (OP)• 2. OFFER FOR TARGET • 3. ALLOCATION SHARES/FUNDING IN • 4. ACQUISITION COMPLETED• 5. FRAMEWORK (SHAREHOLDERS AGREEMENT/EXECUTIVE SERVICE

CONTRACT)• 6. ANNUAL TARGETS/REVIEW• 7. BANKING OF RIGHTS TO ACQUIRE SHARES BY ACQUIRING PHARMACIST (AP)• 8. PAYMENT OF DIVIDEND • 9. EXERCISE OF OPTION TO BUY OUT• 10. WHAT IF NO BUY OUT BY AP?• 11. DISPOSAL OF OP BY ALBAPHARM & PRIVATE INVESTOR (PI)

• STEPHEN WILLIAMSON • PARTNER • FOR HOLMES MACKILLOP LLP• 35 WILLIAM STREET, JOHNSTONE, PA5 8DR • TEL: 01505 322244• Also at: 109 Douglas Street, Blythswood Square, Glasgow, G2 4HB Tel: 0141 226 4942

Financial Implications

Peter Gallanagh

Campbell Dallas

Chartered Accountants and Business advisors

Financial Implications

• Investor– EIS Relief– Corporate Venturing

• Operational Pharmacist– Initial Investment/ ‘Hurt Money’– EMI Scheme– Access to Optional shares if excercises right

to buy all– Good leaver/Bad leaver provisions

Financial Implications

• Management/Control– Monthly monitoring information– Benchmark information– Year end audit

• Win/Win Situation– Investor – decent return and protection– Operational pharmacist – Business otherwise

couldn’t afford.

Financial Implication

• Acquire a pharmacy:– Turnover £1million, EBITDA £200,000– £1.2 million cost.– Finance :

• Bank Funding £840,000,• Operational Pharmacist £72,000, • Investors £288,000

– Assume inflationary growth in turnover and EBITDA each year for 5 years.

Financial Implications

• Operational Pharmacist achieves targets of inflationary growth and EBITDA each year and hence has option to acquire further 30% at day 1 price.

• Can only do so if exercise right to Acquire all shares.

Financial Implications

• Returns for the investor:– Dividend each year assume to be at 4% of

investment value.– Refund of tax equivalent to 20% of initial

investment.– Capital gain – Tax Free.– Based on these numbers over the 5 year

period and assuming no change in goodwill multiple return is approximately £270,000.

- Equivalent to an IRR of 27%

Financial Implications

• Operational Pharmacist– Pays an initial consideration for shares – “hurt money”– If achieves the targets then has the right to acquire

additional shares at initial consideration price IF excercises right to buy all shares

– Acquires remaining shares at market value at date of exercise.

– Overall pays slightly more for the pharmacy than would have at the outset but gets a business that he otherwise would not have been able to afford.

Financial Implications• This is a very good scheme for all.• It will not suit all circumstances.• Diligence exercise required – both financial and

operation to ensure satisfactory.• Need to set realistic and achieveable targets.• Need to have an element of growth to ensure there is a

satisfactory return for the investors.• Need to ensure the business is cash positive to pay off

loan and be able to gear back up to pay out investors.• Investment appraisal critical and no one- fit all solution.• Not Investment advice – speak to an FSA registered

individual.