What Makes a Pharmacy More Valuable? | Sean Duffy, RPh, Integrity Pharmacy Consultants

Speech to text:

Mike Koelzer, Host: [00:00:00] Sean for those who haven't come across you online, introduce yourself and let our listeners know what we're talking about today. 

Sean Duffy, RPh: My name's Sean Duffy. The company is Integrity Pharmacy Consultants. I've been in business for about seven years, exclusively helping independent pharmacy owners and networking them with people who either want to buy or sell a pharmacy.

Uh, we specialize, that's all we do. I'm a registered pharmacist. Uh, the second generation grew up in independent pharmacies. Personally, I actually went the chain route because the pharmacy was sold when I was in my, my father's pharmacy was sold when I was in pharmacy school. So I got myself out of there and now helped independence.

We're going to talk a little bit about buying and selling a pharmacy in today's environment, uh, how the valuations have changed. Uh, what's different? Um, and, and where do we see things going? 

Mike Koelzer, Host: All right, Sean. So you brought this up, so I take it. We can go there. You said your dad sold the pharmacy while you were in pharmacy school.

Is that a good story? Is that a rough story? Let's hear it. 

Sean Duffy, RPh: Yeah. It's um, it's, it's neither, I guess. Um, he had a partner, right? So he was 50% partnered with somebody else. It was busy, independent, they were filling about six to 700 scripts a day. Um, and a chain came along out of the Midwest called Hy-Vee drug town and offered them just a suitcase full of cash.

That was, that was significantly more than what, uh, uh, three or four times, even a four time, multiple, uh, what, what, I would be able to finance and be able to buy a four. So there wasn't any ill will, um, because he, he and his partner did very well exiting the game. Um, but I just had to find something else to do.

Mike Koelzer, Host: Is that something that you kind of knew that you were not going to be in the running? Or did you have it in your head going into the pharmacy that you would buy into that, but the offer was so good that you would not have been close? 

Sean Duffy, RPh: Yeah, I wouldn't have been close. Um, so that's that's what I did, I got a college degree first and, and, uh, just bachelor general studies went back to get the pharmacy degree.

And the reason I went back was to hopefully. You know, work for, and then buy in and take over the pharmacy. Um, unfortunately it didn't, you know, they just came and knocked on his door and offered him a price and it wasn't my pharmacy. Right. So he and his partner discussed it and they decided this is, this is too great to pass up.

And it was kinda, that was it, you know, in a matter of a few months, um, they ended up selling it, which was good for them. I mean, 

Mike Koelzer, Host: how'd your dad approach that with you? I know it wasn't yours. He didn't, he didn't have to, but I'm sure he did. 

Sean Duffy, RPh: Yeah. Um, he said, listen with. You know, we're getting to the point that me and my partner want to retire and his partner wants to retire more heatedly.

So it was, it was kind of being forced by his partner that said, you know what? We need to take this offer because I'm ready to retire. And I think it's a great offer and I want to be out. And it's something where I would not have been able to compete with the offer to buy his partner out. 

Mike Koelzer, Host: Not only maybe you would not be able to compete, but maybe even if at that time the partner wanted to go, let's say the huge offer wasn't there.

Let's just say a normal offer was there at the time. If the partner wants to go, you don't have the funds right away coming out of college. And unless your dad's going to spot the partner 50%, I mean, it's almost like whatever the offer would have been. If he's ready to go, he's kind of ready to go. 

Sean Duffy, RPh: Yeah, but we would have been able to figure something out, you know, today you've got your live Oaks and first financials that support, you only need 10, well, really 12% down to be able to do it.

And if the owner carries a portion of the note, then I think you can do it for as low as 5% down. So that that's something that we could have done and would have been able to work out through a financing piece of it. But the multiple, the cashflow would have never worked from a loan perspective to pay him off.

Mike Koelzer, Host: So what are you thinking when you hear that, then, 

Sean Duffy, RPh: you know, it's challenging and he even told me back then this is in the. This is probably 1990. He told me, I don't know if you [00:05:00] want to go into the pharmacy. The margins are getting really tough. 

Mike Koelzer, Host: He's telling you that before you're going to pharmacy school. Yes.

Sean Duffy, RPh: Right. He's like, I don't know. I'm not sure you want to do that. And you know, in retrospect I think every owner would be very happy to have those margins from 1990. 

Mike Koelzer, Host: Sure. For sure. So he tells you that, but you go into it anyway, right? 

Sean Duffy, RPh: Yeah. It's, it's, uh, something I wanted to do. I wanted to help people. I wanted to, you know, carry on in traditional pharmacy, be like my dad.

Right. Um, and it just seemed like a natural thing for me to do. I was doing science. I was good at math. I was good at working with people. Um, so yeah, it was a natural type of fit for me. Pharmacists, pharmacy has been good. 

Mike Koelzer, Host: And people ask me, they say, are, are any of my kids going to go into it? I'm like, well, so far, none of them.

And I say, it's important for me to tell them that if any of them want to go in, because they love science, they love the people, they love this. Anything you might love about pharmacy, they should only go in for that reason, thinking that our pharmacy is going to be there, you know, years or even months from now.

You just don't know. I mean, years ago when I was in pharmacy school, you can maybe look out maybe 20 years, maybe two years now you can't look out two months or sometimes two weeks something could happen to bring your business under. 

Sean Duffy, RPh: Yeah, no, exactly. It's frightening. And, when I work with owners, I, I, you know, I might be able to bring them an offer.

And they said, yeah, that's not really quite what I need to retire on. I think I'm going to stay in business again. And the thing I try to emphasize the most is, you know, this is the offer today, you know, right now. And there's so many different things that can change that. Um, for, for instance, let's say the DEA comes in because you filled a couple of prescriptions from a doctor that they've been monitoring and all of a sudden, they come into your pharmacy, they do their audits and they find, um, I've had a situation where there was change of ownership, but the power of attorney was not updated.

And because of that, they asked them to surrender their DEA license and, and they did, they didn't know better than that. So you go from a very profitable pharmacy that would have sold for over 10 million. And sold for less than five. 

Mike Koelzer, Host: I saw Natalia on your website. And we had her on the show a few months ago and we were talking about a DEA agent on her show and his method was to go into every pharmacy and tell them to turn in their DEA license.

I mean, that, that's what he did. You know, that's just how he did it. It was unbelievable. 

Sean Duffy, RPh: Yeah. And they come in, it's not just one person. They come in with a team they're all wearing DEA jackets. They've all got assault rifles, 

Mike Koelzer, Host: They're like a SWAT team. 

Sean Duffy, RPh: And then just out of intimidation and it's, it's their job to get as many pharmacies to surrender their DEA license to, to make it look like they're doing something, which is really, really sad because the majority of the owners I've seen this happen to It really shouldn't have, you know, that obviously there's some that. They crossed the line and, and, and I get it, but the majority, they're not significant enough to do that. So getting back to it, the value of your pharmacy could change overnight, literally overnight. 

Mike Koelzer, Host: So Sean, over the years, you've been here seven years.

And thinking back to even when your dad was in business, looking at the value of the pharmacy, the sale price of the pharmacy, was there any year that it actually dropped significantly in one or two years 

Sean Duffy, RPh: from an independent perspective? No, not really. Um, the banks used to give a higher multiple when, when deciding how much money they were going to give out on, uh, uh, how much money they were going to loan on a pharmacy.

It was more typical to see three and a half or four, four time molds. But now we're seeing it as low as a two and a half to a three times multiple when they're valuing the pharmacy and how much money they're going to loan for multiple of their, oh, I'm sorry, their, uh, EBITDA. So their net profit and their adjusted net profit.

Once you go through the P and L and, and, you know, take care of your expenses, that aren't true expenses, add them back. It's going to be right now. It's two and a half to three times. The multiple is what the banks will loan on. 

Mike Koelzer, Host: I imagine [00:10:00] that in some pharmacist's mind, when they look at their store, they may be able to pick a year where they think their value went down.

You know, they can look and say, oh, that's a year. We kind of lost our profitability or lost a bunch of profitability. Maybe it went up. But on the industry average, maybe you didn't see a year that dropped across the board for everybody. 

Sean Duffy, RPh: Uh, nothing comes to mind from an independent perspective from a, from a chain perspective.

Yes. Um, if you've got somebody looking to buy you CVS over the past several years has been the most aggressive chain, as far as the offers that they give and how they reimburse for, uh, different things in inventory. And, uh, there was a time where they were purchasing targets, right. And they didn't want to violate any, um, FTC regulations or monopoly regulation.

So they basically stopped buying for a year. So, that affected the market because we weren't getting as high of offers from that perspective. Um, and right now things have changed significantly with them again, where instead of acquiring files, they're really not doing much of anything right now, unless.

Unless it's the only store close to them and they get it. They get a, buy it at a, at a pretty good price. They get a kind of a bargain on it because they're closing 900 stores over the next three years. And they're, they're focusing on that help. That was acquiring business now to try and retain the business of the stores.

They're closing. They've got, I would say eight acquisition directors, regional directors of acquisitions. And they're going to repurpose their time instead of going out and finding files to buy pharmacies. they're now going to be assigned to the closing stores, their CVS closing stores, and try and retain those patients and prescriptions into other CVS that are going to remain.

Mike Koelzer, Host: When you were saying that for a while there they didn't, they weren't buying because they were purchasing target stores. So then the demand goes down. Then the prices go down for pharmacies, right? Because the other competition doesn't have to fight with CVS to buy something. 

Sean Duffy, RPh: Um, we really haven't seen that.

We haven't seen, I haven't seen the prices change with the other competitors. I've actually seen Walgreens, Rite aid, uh, Albertsons Safeway. I've actually seen them get a little bit more aggressive as far as their appetite to get files and to give good prices on them. So you're, but you're right. You might think without somebody setting the, the expectations out there, the highest person being gone, you would think that it would go down, but maybe.

Taking advantage of the situation, getting as much as they can. Um, a lot of stores, if there's a potential buyout, like if Rite aid is setting themselves up to be purchased by a large organization, they're going to want to increase their sales. So they're going to be really aggressive, trying to get, trying to get inorganic scripts into their pharmacies.

Um, same with Walgreens. If Walgreens were setting themselves up to go to a private equity firm, I would think that they would want to bring more scripts to make it look more attractive to a potential buyer. 

Mike Koelzer, Host: I guess this is basic economics. I'm sure. I'm just kind of thinking as we go here, but if you're in a small town with.

Two pharmacies, one being an independent and one being a chain, the chain can basically say, we're not going to buy anything. I mean, we know that 90% of your customers are going to come to our pharmacy. So the only reason they're buying the files is basically because of the competition. Right? 

Sean Duffy, RPh: Correct. And, and you do have to be careful, um, how you approach the chain in that situation, because like you said, well, we'll just wait for them to close and get it for free.

Not that they're always like that. Um, but, but I've seen times where they said, well, why, why do we need to purchase that if we're going to get the patients anyway. So it's, it's how you go to change. You would go to them while we're thinking about selling and make sure they don't know that the owner needs to close.

Right. You got to play the game a little bit. Uh, you gotta be coy. 

Mike Koelzer, Host: I [00:15:00] guess in my example, there, the other option, and you brought that up right now, Sean, let's go back to this small town with two pharmacies, the independent and the chain. They might want to entice the independent to close with money. So that's a huge thing in a small town in this example, by no means, do you want the chain to know the independence is going to be closing because they might buy it to entice them to close?

Sean Duffy, RPh: Correct. And, and like, like in a situation where they're really aggressively trying to increase their sales, to meet their stockholders expectations, to make sure the stock doesn't drop, you know, that's one of the ways the companies will, will increase their, or keep their stock value up is by putting in some of these acquired Scripps.

So in that situation, yes, then. Entice and maybe give a higher than normal price, but you have to approach it the right way, because if they smell blood in the water, right. They may say, well, I don't need to pay much for that or anything. So it's all about the approach. And it's very sensitive from an owner's perspective, how do they do that?

How do they, how do they get that out there and, and say it the right way. So they do get their value now in a situation like that, that, and you do have an aggressive chain. Your store is going to be worth more than probably any other store, because they're probably going to retain a hundred percent of that business.

Most of the time, when a chain is going to make an offer to purchase your files, they're going to estimate depending on the location and how many other competitors are and third-party plans, they're going to estimate 30 to 40% retention. Is all the scripts that are going to be retained after a year's time.

But in this situation where there is no other option for those patients, they're basically going to get a hundred percent of those scripts after a year's time, unless they go to mail order or something else. 

Mike Koelzer, Host: Now let's leave the small town. We get into a bigger town and near a pharmacy with five chains within a mile radius of you or something.

So then what goes out the window then now, now it's okay to say the owner wants to get out because now the competition is against those five. Or do you still have to play that game of saying you're not, you know, you're thinking about it kind of thing. What are the dynamics there? As far as the, the mental aspect, 

Sean Duffy, RPh: That's a completely different conversation in that situation, because now you're trying to play, uh, the chains off one another and trying to.

And negotiate or leverage a higher price and well, you know, chain a, you know, right now they've got a higher bid than you do. You can't tell them what that is, but you, you didn't say right now, you're not going to get the file. So if you, if you really want these files, you're going to have to improve your offer.

Um, so yes, you do. You want to say the owner is willing to sell, but right now you're going to have to be more competitive on your price if you want these scripts, because if the owner closes, then their competition's going to get it and they don't want that either. 

Mike Koelzer, Host: If they get 30 or 40% of the prescription business in that case, how much is it worth the one pharmacy to buy these, but then only keep 30 or 40% when the other ones are maybe.

10 or 15%. I'm sure they know that, but it just seems like a lot of effort to be the one that buys it when all the other ones are going to get that runoff. 

Sean Duffy, RPh: Yeah. But it, it, it does work. It does work financially. You have to keep in mind that this is all mostly incremental business for them because they've already got rent.

They've already got labor. You know, they might have to increase the tech labor a little bit, but this is all incremental. And then you also have to think about all the front end margins they're going to make by drawing more people into their stores. So it definitely works. So if you're going to have a shot at retaining 40% of that business, then 15, then yeah.

You're, you're going to make a bid to try and get it. And the retention that they estimate that they're going to keep, that definitely affects what they're able to pay, um, an owner for their business. So the higher, the retention, the higher the price prescrip, and they would 

Mike Koelzer, Host: have different areas. They might have better retention or they know how their business is doing, going up or down and things like that.

Yeah. 

Sean Duffy, RPh: Like, um, uh, name recognition. So Walgreens is well known in Chicago. So if they buy something there, they're going to have a better retention than maybe in [00:20:00] Rhode Island or, you know, right. They don't have the same name recognition there. All 

Mike Koelzer, Host: right, Sean, you mentioned this. And I feel in my gut, this is what they do.

But you said that the other one makes a bid. You said it's common knowledge. You're not going to give the price of their bid. And I understand that too, but here's the thing, as I think about it, why not? Why can't you go to the one pharmacy and say, you know, you could put on your cowboy hat, Sean, and start being like an auctioneer, you know?

And you could point to these five pharmacies and talk about the price, but that's not common, right? W 

Sean Duffy, RPh: w we've got, we've got confidentiality clauses in place with not only our sellers, but the buyers as well. So it's confidential. If we release their offer to somebody else, now we can, we can give a ballpark or steer in a certain direction, but we just can't go out and say, you know, chain a is offering 750,000.

So you're going to need 775,000 to increase that we're going to, we're going to go, go about that conversation more guided, 

Mike Koelzer, Host: But why, why did they do that? And I, I think I can think of answers, but why do they have that? I'm thinking in general, like this whole business, why do they do that? Why do they have confidentiality?

I can imagine why, but it would seem like it'd be kind of cool to actually name prices like an auctioneer. So why do they have confidentiality? 

Sean Duffy, RPh: And they don't, they don't want the competition to know what they're doing. They don't want the competition to know anything about their finances. Even when they do a, what's called a due diligence report, they'll hire one of the data conversion companies like 2.0 or info works or something like that, where they dial into the system and they extract the data and then they present it in a summary report.

So the chains can value how much they're going to pay for it, that the chains are very confidential, that they don't want any other chains knowing what type of report they have. It's just 

Mike Koelzer, Host: so secretive. 

Sean Duffy, RPh: Yeah. And the other advantage is from an owner's perspective, not listing an actual price, because if you say, well, the offer on the table, seven 50, well, you've just said a ceiling cap for the other buyers that they're only going to.

Okay. Well, that's seven 50. I only needed bet bid 76. You 

Mike Koelzer, Host: might get her way too low. Do you find the chain people pleasant? 

Sean Duffy, RPh: Uh, vast majority, um, because we've got to have great relationships with them to be able to, uh, work in and get a better price. But 90% of them are very pleasant to work with. You know, they've got a job, they've got goals, they've got bonuses that they're trying to meet, so they're trying to get deals done too.

So it's, it's good for both of us when we have good relationships, but there's, there's a couple of acquisition directors or representatives for the chains that are just so, um, tight with their offers. Um, they take it more personally, like it's their, their bank account. So they're going to offer as little as they can to get the business.

It's just the way they are. 

Mike Koelzer, Host: Outside of the money though. Are there some of their personalities that are like some people you don't like to deal with because of that part of the industry? Or would you say they're all sort of like pretty congenial, like nice people who know they have to sit at the table across from each other.

So they all stay friendly. Are there any similar problems? 

Sean Duffy, RPh: Not really. No, not really. They, these positions are, are very, um, sought after positions because they're not as, as stressful as you know, the typical train, uh, chain retail, where if you can get off into this type of portion of the business, it's, it's better to be in and you have to be, you have to be a high performer to get to the.

Mike Koelzer, Host: So you might be a people person already. You've raised up some of the ranks of knowing how to deal with different situations on a personal level and all this stuff that a person might bring to it. Those are the people that you probably have here.

Would they say that about you? I do. Of course. I'm joking. Of course you 

Sean Duffy, RPh: are. Well, no, I I'm. I'm very honest if I wasn't good at something or if I was whatever, I'd be the first Italia, but we're, we're very honest and that's one of the things that they appreciate from us. They know that we're not going to bring them a business where we know there's flaws in it or challenges where it's going to [00:25:00] really, you know, it's really going to bite them in the butt.

Right. Um, because we won't do that. We won't sell a business if we know that. There are some challenges that are hidden inside of it. That's going to cost somebody weed. We just won't do that. 

Mike Koelzer, Host: Not thinking about hidden items. Let's say everything's out on the table. Are there any pharmacies that are not sellable?

And you mentioned one, the lease is going to close and they don't have any options. And the changes get some, are there any pharmacies that are, I can't think of the reason they're just not sellable either. They're run by it's out on the table, but maybe they're run by a crime family out on the table or what things would preclude a chain from buying a place.

Sean Duffy, RPh: Um, so, uh, volume, believe it or not. There's lots of pharmacies out there that we see that are filling. 150 to 200 scripts a week. Um, and when you mentioned, you know, is it really worth their time to go out and get 40% of the scripts? Well, it's really not worth their time to get 40% of 200 scripts a week, right?

Because there's a lot of labor, there's a lot of planning, there's a lot of coordination and it really doesn't make it worth their while. So sometimes a chain may just say, listen, we'll help you out and purchase your inventory, but we're not going to pay anything for your files. And you gotta, you gotta settle up your rent and your own.

And what other financial commitments you have. Um, another one would be, uh, DEA issues. Um, if they were dispensing a lot of controls, they get their DEA license taken away. Um, all of a sudden. That DEAF awareness gets transferred from the independent store now to the chain, and they don't want the D DEA coming into that chain and also looking for issues there.

So they'd prefer to stay clear of that. Other issues would be, uh, OIG, uh, fraudulent billing. They definitely do not want any office of the inspector general coming into their pharmacy because some of the prescription files they bought from the previous owner were fraudulent. Um, you, you never want to bring on big challenges, um, like that into your 

Mike Koelzer, Host: store, in theory, there's corporate veils and there's, you're not buying their name, you're buying this and that, but it's like, why bother?

Right? That trail is still there. Yep. Have you ever gotten pretty far with a pharmacist? It says, oh, Sean, by the way, at closing, you might see this document that talks about X and you're like, ah, you should have told me about X when it was like at a, 

Sean Duffy, RPh: So I'm, I'm in the process of closing on one right now, like this week.

And they, the seller, um, made it public notice that they were closing before they actually were. And it went up on the website and it went up on, uh, you know, they sent, I don't know if they sent letters to, to their patients, but, um, anyway, it came to my attention and I had to let the buyer know just so you know, you know, this is, this is what happened.

Because 

Mike Koelzer, Host: that gives the patients a chance to go 

Sean Duffy, RPh: patient and opportunity to go somewhere else before they even purchased 

Mike Koelzer, Host: the fi, did the seller do that on purpose? Because he or she felt bad that they were going to hold these files hostage, or they weren't thinking 

they 

Sean Duffy, RPh: were in negotiations with somebody else where they thought a cell was eminent in the next two to three weeks.

And that fell apart. Um, their employees were also part of a union. So they had to do certain notifications to their employees per the union rules. I had to notify the buyer just now, but we're still continuing with the sale. They just reduce the purchase price on it. 

Mike Koelzer, Host: A lot of the sellers will have a side agreement, right?

How much of the business they retain? 

Sean Duffy, RPh: It's part of the contract. It's part of the purchase agreement for the chains, where if you drop typically it's, if you drop more than 5%, then they'll prorate the purchase price. 

Mike Koelzer, Host: I was talking like after purchase, but you're [00:30:00] saying that let's say you agree to something.

And then at closing, 30 days later, 60 days later, then they do another poll. And it's in the contract. If you were stupid enough to announce to the world you are selling, and if this goes down five or 10%, the contract itself says, we're going to cut this down to this. 

Sean Duffy, RPh: Right? And, so they've had owners in the past that once they've struck a deal, they signed the contract.

There's been an owner once they closed the pharmacy down for a week and went on vacation, not so smart. Now it typically there's, there's typically not a reduction because the owners typically do a pretty good job keeping the volume up. Um, but in situations like this. Yeah, it's definitely going to hurt your business.

If you notify your, your patients and your employees before you're supposed to, 

Mike Koelzer, Host: if you had to put together a, let's say a YouTube video for your business, and you had to have some archetypal pictures of a perfect seller and a perfect buyer and your interaction with them, what would you like that video to show, you know, would you like it to show two independent shaking hands because they bought from each other.

Would you like to show a, you know, independent, you know, carrying bags of money away from a chain pharmacy? What is your favorite interaction? If you could kind of pick one, 

Sean Duffy, RPh: Ideally it would be the first situation you brought up. My heart will always be with independence and, and I'd like to see independent pharmacies succeed.

Um, so anytime we sell to a chain, um, you know, it's kind of bittersweet. We know we got money for the owner and they can retire, but we've got one less independent out there. Um, I think a NCA NCPA came out where they think, uh, we're, we're now down to under 20,000 independent pharmacies in the country.

I think it was like 19,700 and something. Uh, so it is tough to see that and we would love to have independent independence. Um, but we don't make that choice. W our, our job is to hopefully bring a seller, multiple offers, you know, whether it be the chain and independence or, or just private equity. And then we let the owner decide what's best for them and their, their family and retirement and their staff and whatever.

So our goal is just to bring multiple opportunities and then let them decide what's best for them. So the, the handshake with the independence where you've got somebody that's going to go off and be able to retire, spend time with their grandkids, go fishing, go hiking, just travel the world, whatever it is.

And you see, you know, somebody coming in that's very eager with a lot of excitement, a lot of energy and wants to, wants to go out, really do something for independent pharmacy. That would be the ideal artwork of a picture of a transaction. Yeah. 

Mike Koelzer, Host: Of the people that buy an independent and want to keep it as an independent.

I'm sure that there's a gamut of those people. There are some who have never owned a pharmacy before. There's some pharmacies in the same town that want to expand. There's some people that come in, maybe from a different state in kind of an independent slash small, independent chain of five or six stores in the area or something like that.

Do you cover all those and what am I missing? 

Sean Duffy, RPh: Um, so, so I would say the vast majority of the independent buyers right now are typically smaller groups of owners getting together and just buying more stores and getting more of a network and more of a coverage. Um, because by going with, with more stores, they can then buy down their cost of goods sold with their wholesaler.

Right. They've got more leverage, they've got more stores, they've got more that they can negotiate. And a lot of times they'll bring in junior partners, some of the younger. Young pharmacists are looking for an opportunity and have them run the pharmacy for them through their guidance. And then those junior partners then eventually go purchase their own pharmacy or they buy more ownership of the one they're in.

So that's probably what we see the most of right now. How 

Mike Koelzer, Host: many people in that ownership group? Usually five, maybe all pharmacists. Yeah, that sounds terrible. To me. It does. We have a family business and my dad, he was a benevolent dictator for a while. Then he died [00:35:00] on the benevolent dictator. Cause there's nobody else in the family, in the ownership position, except myself just sounds, just, sounds terrible to have five different people owning something, but I guess they're pooling their money.

Right. And all that stuff. Does that sound good to you? Would you like to have five equal partners with yourself? 

Sean Duffy, RPh: Aye. Aye. Deely not, but it makes your transactions a lot easier because you've got a pool of money instead of just getting one person financed and being able to, you know, sometimes put out a big sum of money on a down payment and qualify for a loan.

Um, now you've got a pool of it and your risk is 20% versus a hundred percent too. So there's stability in that as well. Where if something goes wrong, you're not going to be penalized as much, right. Because you're only at 20% versus a hundred. 

Mike Koelzer, Host: Where would five of those people even meet? Would it be maybe pharmacists in a town that kind of started talking about independence or something?

Typically they're 

Sean Duffy, RPh: buying groups like a GPO. Or they're with McKesson or Cardinal, they meet at trade shows. 

Mike Koelzer, Host: Oh, I see. And maybe they're in the state or something like that. 

Sean Duffy, RPh: Right? Exactly. Exactly. They're there usually within a geographical area where they've, they've got commonalities, whether it's the state pharmacy association or, um, uh, they meet at peak PDs or PRS or some of the other consulting firms that help with, with pharmacies and help invigorate your business, 

Mike Koelzer, Host: the pharmacy law, where you need to have a pharmacist there to be open.

That's been the good thing about me having just one pharmacy, because I kind of put on an air. Like I pretend to be a nice guy, but deep down it's like, I'm competitive. And I like to tell people to screw themselves. If they test me too much or, or, or, uh, try to stand up to me too much, you know, when I want my way or whatever.

And so. I would never want to be in a position where, you know, I've got like two pharmacies or three pharmacies and somebody knows that they got me because they know I can't be in two places at once. And that's the beauty of having my own store because I can be a nice guy when I think I should, but I can be a difficult person when I think I should.

And I'm not afraid of anybody walking out on me because I can just go and be. My point of the five owners, I suppose there's some value there too, of just having five people with a license, being able to jump in if they need to, not that they're all working the bench, but I think that would give a little bit of solace to me too.

If I had more than one store. 

Sean Duffy, RPh: Yeah. You're not, you're not on your island by yourself. There's more options. And the more stores that you get, you're like you said, you're typically not going to be on the bench. You're going to be spending all of your time managing the business. And you've got people that, that you're developing to do what you would have done when you were there.

Right? So it's just a development process. And, and just trying to keep the business going, keep it profitable, looking for opportunities where for improvement to improve the profits, basically. And it's hard to do when you're filling scripts all day. To be able to do that as a one store owner, because there's typically not as much volume to allow you to pay somebody to where you don't have to be on the bench at all.

Right. Right. So there's definitely some advantages and disadvantages. It all depends on, you know, are you more on the business aspect and just want to run multiple stores and just business, or you want to be in the weeds and still work with the patients and the people from the community and your employees.

Mike Koelzer, Host: I think you found a soft spot in me, Sean, because I don't want to work with partners. I also don't want to work with the customers or the employees. It's the truth. It's the truth, you know? And I always thought that maybe I would do multiple stores. It just seemed the time. Wasn't right. As soon as I. Kind of thought of it.

You just see a lot of the writing on the wall of the, you know, the PBMs and that kind of stuff. And then it's like, ah, that just sounds like a, that sounds like a headache. And it probably was a situation where our pharmacy was busy enough that I wasn't in there all the time. And I was able to have a decent staff.

It wasn't until the last [00:40:00] couple of years that I'm in there a lot more. And I would not want to have had a life of that. But at this point it's like, I also don't want the headache of owning a few stores just to not be in there. So 

Sean Duffy, RPh: well it's, especially when you're used to running the business the way you want to run it, because you're not going to be able to duplicate yourself as much as I'd love to duplicate myself and, and be in different parts of the country and in covering everything myself, you can't, you just have to, you know, I guess put your trust in them and that's hard to do sometimes.

Right? Which you trust. Help develop and whatever, but 

Mike Koelzer, Host: yeah, my problem with the pharmacy, whenever I was away from it, it wasn't so much that I didn't trust them with the customers. It was pleasurable to have the store well manned, well person, and I didn't have to be there. My concern was not so much. Were they treating the customers?

Well, I spent too much time focusing on how I was treating my team well so that they would stay there. So I wouldn't have to come in and do it myself, you know? And it wasn't worth it because you can't keep people happy. And if they want to go, they're going to go anyway. And I put on too much of a nice face and I should have let the real person out more and just been more honest with people because it's not worth pandering to them.

They're going to leave anyway, if they want.

So Sean, what, in general, when you have an independent, that's going to sell outside of any non tangibles of maybe being, you know, trying to be good to the area and trying to have your, you know, the store stay independent and all the things that are maybe the intangibles. Is there any value outside of that for an independent to sell to an independent?

Or is it a no brainer to say in most cases you're going to have a chain by you? Oh, 

Sean Duffy, RPh: no. Yeah. So I would definitely not say that. Um, I think it's independent. Have become more competitive with the change because you know, with, with this big player out there, not out offering the, um, 17, 18, $20 a script anymore, uh, typically you're seeing 12 to 15, maybe 16 per annualized script is, is what the change might be paying 

Mike Koelzer, Host: with a big buyer out being CVS.

So we talked about, but 

Sean Duffy, RPh: for the most part, yes, for the most part, they're not nearly as aggressive and I don't expect them for at least a year or so to do anything. So 

Mike Koelzer, Host: the demand is down and then you're a lower prescription reimbursement, 

Sean Duffy, RPh: right? Yep. And there, there are opportunities where we're actually seeing more independent to independent, uh, transactions that are happening than we've had in the past because there were some of these models.

Paydays. I mean, they, they were, they were pretty, pretty 

Mike Koelzer, Host: lucrative and those aren't there anymore. 

Sean Duffy, RPh: Not as, not 

Mike Koelzer, Host: as much, no, again, taken away the intangibles. Are there times when the actual finances come out better to sell to an independent than to a chain? 

Sean Duffy, RPh: Yes, I've, I've got one in California now that it's sick.

It's significantly worth more to an independent because they've got a specialty involved. Um, they've got, uh, they do a lot of psych meds, some of them, the high dollar injectables, they've got a great rebate program going. Um, you know, a lot of chains are looking for traditional retail scripts so if you've got a blended pharmacy where you're doing 70% retail and 30% compounding, you know, the chains are going to want that 30% compounding.

So they're only going to want to. The 70% retail, but an independent comes in. Heck yeah. I want that compounding business because that's generating a lot of cash, a lot of gross. So in those situations, it's definitely, um, you're more geared to an independent buyer. And also let's say you got a split between, uh, retail and LTC.

LTC is paying more, you know, higher gross margins. If you're, you're set up differently through your licensing and purchase contracts. So [00:45:00] you can actually make quite a bit more than, than a typical independent. So it makes it more valuable to an independent buyer. Then it's going to be to a chain 

Mike Koelzer, Host: And sometimes you got the building there, right?

Yep. 

Sean Duffy, RPh: Yeah. So, um, so it's, it's, let's say you own the building, you sell your. Your patient files and your inventory to a chain. Well, what are you going to do with the building? I don't know what the real estate market is like . A lot of owners like to continue renting and have a, you know, a continual income just based on the rent.

And the only way you're going to do that is sell to an independent. So these are all the things that we, we work with an owner on to say, Hey, you've got to, you've got to weigh everything out because there's different, different pieces of this, this puzzle. That's going to make a difference. Um, we've got another situation where, um, it's, it's actually a small regional chain looking to buy out a few pharmacies and it's an independent, small regional chain, right?

Not a chain chain. Um, and there's a chain right next to them as well. And the chain offers better. However, The small regional independent is offering them a supervisory type role and a high salary, and they're going to rent the building as well. So there's other things that an owner's going to consider even though the offer for the chain is better.

I believe the offer from the small regional overall is probably the best thing and quality of life, right? So this guy is still fairly young, still has probably 15 years left to work. You know, I'd rather be working for a small regional chain helping with the management and business part of it. Then working for a chain.

Mike Koelzer, Host: Yeah. I don't picture myself doing this, but let's say someday, I'm not working at my pharmacy and I'm somewhere else and it'd be easier to be somewhere else. Doing what they say to do. It'd be hard as hell to be in your own store. And one day you're the boss and the next day someone else is your boss and you haven't had a boss in 40 years.

Sean Duffy, RPh: Yeah. It's a hard transition now because there might be a lack of different opportunities for this person to make an income. They may do it for an, you know, a while, even though it's not the most optimal work environment for them. So it still provides that income that they need, you know, it's just, you know, what's, what's best for them overall.

Mike Koelzer, Host: Yeah. Let's say someone calls your place, integrity, pharmacy consultants, and they say, Hey, Sean, we're thinking of selling, but it's, you know, it's probably going to be. Three five years out, whatever, just, just thinking down the road, what business decisions I'm not talking about, what did they have to do for you guys?

Cause I'm sure there's different forms. They can fill out and talk to you and this and that. What business decisions, when should they, would they start changing their business? Would they start getting lower? Paying insurance is to get rid of low paying insurance, start cleaning up this, get rid of some services that aren't good, or maybe bring on some services that are lower paying, but it would look good for the buyer.

What kind of things would they do? Three to five years out that might help make their business more valuable? 

Sean Duffy, RPh: So I, I don't think you'd even need to go back three to five years. I think if you go back two years is probably the time to start thinking about it. Um, So store cleanliness. And is the store updated?

How is the store? Is it presentable? You know, similar, if you have a board of pharmacy inspection, right? The inspector comes in the cleaner, the more organized the pharmacy, the less issues that they're going to suspect or dig for, because they're going to make the assumption that everything's nice 

Mike Koelzer, Host: clean bathroom at a restaurant or something.

Sean Duffy, RPh: Yeah. And when you walk into a pharmacy, are the fixtures updated? Is it clean or the shell stocked? Are there a bunch of holes? Is there dirt on it? You know, just, just look at your store from the customer's perspective, because as an owner, you go in that store every day for how many years? Sometimes 30, 40 years, for sure.

You never see, you never take the time to see what a customer sees. That's right. But step back, and walk into your store. Well, actually start outside your. Look in the parking lot, look at the signage, you know, are the [00:50:00] light, all the lights on look from a customer's perspective and what are they thinking and start to improve, um, you know, to, to make it more updated probably a couple of years.

Because sometimes it will take time. Um, one really important thing is that we've seen owners that have not billed through insurance because they would rather just maybe, uh, I know they're not supposed to do this, but they do. They just match the copay and charge them cash price. So they're not paying switch fees and other things like that.

Well, that could hurt them when they go, if they go to sell to a chain, because one of the things that chains will look at is the percentage of cash prescriptions to their total business. If you get over maybe 5% total. Prescriptions. They're going to start discounting how many prescriptions they think they're going to retain because their cash model is a lot higher than what most independents are.

So they don't think they're going to retain those scripts. So you need to start billing those two insurances. So they don't discount those prescriptions. If a change, looking to buy you 

Mike Koelzer, Host: the chain, doesn't think they're going to retain the cash prescriptions. Why not? 

Sean Duffy, RPh: As their cash prices are a lot higher than independence, 

Mike Koelzer, Host: unbeknownst to most people, their cash prices are higher.

A lot higher. Yeah. Right. 

Sean Duffy, RPh: Yeah. Um, so that's one thing. Your financials, you know, a lot of business owners are going to put additional expenses on the profit loss statement to help minimize how much tax they got to pay at the end of the year, right there delivery cars might be Alexis or a. You know, something like that, they need to start cleaning up the P and L and only put true business expenses on it.

So when it does come time to sell, there's not as much gray matter, you know, somebody trying to sort through, well, should this be an add back? Is this not an add back? You want to look at the profit loss statement, look as profitable as you can. So keep those non business necessary expenses off of the P and L a couple of years before, 

Mike Koelzer, Host: what personalities do you hate working with?

Not your fellow employees, potential customers. 

Sean Duffy, RPh: Um, the, the ones probably that don't trust people, you know, it seems like you're doing everything you can to help them. And that's one of the benefits of working with somebody like us is you've been through the process time and time and time again. So we're not recreating.

You know, the handbook of what he needed to do to close a pharmacy. We, we, yeah, but it seems like sometimes owners just don't trust. They don't trust anybody. Not, not that it's just us. And it's just a fight, almost pulling teeth, trying to get through this process and getting them to understand and explaining why we're doing certain things to get to a certain end point.

So that's probably the, the, the most challenging ones, but we, we haven't ever had a client and I've been doing this for seven years, been disappointed. So we're not going to expect the challenge coming out of this. 

Mike Koelzer, Host: I don't trust people a lot of the time. Years ago, I was getting mine, I was at a wedding and I was getting my pants.

Uh, what do you call it? Hemmed or, yeah, pants hemmed by this tailor, you know, and this guy has done this, you know, thousands of times, you know, and I'm like questioning him is like, I'm looking behind. I was like, are you sure? You know what? I was probably nervous about the wedding or something like that. But it's like, if I were, this guy would have made my pants look like knickers or something to teach me a lesson, you know?

But I, I have a hard time, but it's such a, there's a lot of tension, you know, when you're selling your, I don't, I don't think of my story this way necessarily, but a lot of people are selling their baby, you know, and they're, and there's a lot of tension that goes along with that. So a lot of times that comes out in oddities of human nature, it 

Sean Duffy, RPh: is, it's a very stressful and emotional process for an owner and it's going to be, and we just ask the owner, you know, try when you are making decisions, you know, making the decision.

to Sell or keep running, whatever it is, you know, try and take the emotion part of it out and, and step back and make a business decision. That's going to be best for you, and [00:55:00] your family, the stress part. We can help with that. Right. We know exactly what to do. So we just tell them here's what we need to do, do do.

So that comes out of it. That's the emotional part, that's tough, you know, when's the time, you know, there's so many owners that we've worked with over the years, that it's always, well, I'm going to see if I can bring my business up or make it more profitable. And maybe it's the one more year syndrome.

Right. But it never gets better. 

Mike Koelzer, Host: That's interesting on your website, you've got in your about page, you've got a lot of nice profile pictures of people in a crap load of them are pharmacists. Nearly all of them are former owners maybe, 

right? 

Sean Duffy, RPh: Yeah. Actually, um, you know, the way we got connected, right? John was just out introducing himself.

He recently sold three of his pharmacies and in California, you know, he wanted something to do. Because he's younger. He, I think he's in his forties. I don't know exactly. And that was one of the benefits working with us is I'm like, you want to move to Michigan? Well, I've got a whole five state territory that I could use somebody like you in.

And, uh, that was one of the decisions for him to sell because he, he did find another opportunity cause he wasn't done working, but he found something to do where it wasn't being a business owner, again, an independent owner or working for a chain or something like that. So that, that, that worked out to his advantage.

But through that experience, He saw how valuable it was having somebody help. And he, he wants to go out and do the same thing and help other owners share that knowledge and experience he stopped 

Mike Koelzer, Host: in. And I typically blow most people off, but I forget why he didn't blow John off though. He might've said he was from a broker, that he was a pharmacist or something like that.

What I like though is that he sent me a, uh, oh, kind of a, kind of a sheet that I could fill out for a confidential appraisal or something. And I got it a couple of months ago. I liked that he hasn't followed up though. I'm purpose. I know he could have, it's not like he didn't follow up because he lost my information.

He said, do this at your leisure. And I know that someone like that knows that. There's a timing that goes along with these things and you can't press somebody or else they feel pressed. That's my thought at least of what is transpiring there. So, 

Sean Duffy, RPh: and, and exactly, that's, that's one of the things I get really passionate about.

So one of the things our company does differently from anybody else out there is our listing agreements are non-exclusive. So if, if you don't feel that we're bringing the right buyers or getting the right offers or anything else like that, you can go and search through different avenues to sell your store and not pay us any type of fee.

You know, we really have to earn what we get, where everybody else they're going to tie you into an exclusive listing agreement. So whether they help you sell or not. If you sell it, you're going to pay him a fee. So that's, that's kind of the trust thing that we throw out there. We're, we're not pressuring you to do anything.

Mike Koelzer, Host: Yeah. And I think that came looking at all those RPH is on there of, of knowing that there's a kinship, you know, with your team. So that was cool to see. Well, and, 

Sean Duffy, RPh: and three of them were acquisition directors with the chains. And so they know, we know all the ins and outs right. Of how to negotiate because they were on that side, doing it with independence for years.

Mike Koelzer, Host: Oh, that's really interesting. That's really interesting. Well, John, nice meeting you. 

Sean Duffy, RPh: Yeah. Yeah. And, uh, I hope to, to, to at some point, get up, actually, I'm going to be, I'm flying up there, John and I are going to have a booth at the Michigan pharmacy association. Are you gonna be? 

Mike Koelzer, Host: I don't think so. I know Scott Gunner from PHA said he was coming too.

And, uh, but maybe I should, now I've got two people asking me about it. 

Sean Duffy, RPh: So we're just going to go and meet 

Mike Koelzer, Host: some owners. What's that in February? I think 

Sean Duffy, RPh: so the last weekend of February. 

Mike Koelzer, Host: Yeah. I should think about doing that. Hmm. 

Sean Duffy, RPh: Yeah. And, uh, it's, it's funny. I've got a friend in town, uh, that came to see me. We used to work together and his wife grew up in grand rapids.

So he was listening to your podcast this morning. Some [01:00:00] of your podcasts notice you were there. And he said, oh, that's where Christine grew up. 

Mike Koelzer, Host: I don't go to many pharmacy things. Because my kids are just getting to the age where my wife and I will leave them more often. And I don't go to a ton of those things.

And if I do, I don't know if I want my first one to be like Detroit in the winter time. Just doesn't do it for me. 

Sean Duffy, RPh: And did I see you got 10, 10 kids? Yeah. And yeah. What are their ages? Age 

Mike Koelzer, Host: ranges. They're from 29 down to. My goodness, the younger one is just starting to be, you know, on his own and stuff. The problem though, with a lot of kids is the youngest two are like 11 and 13, but they act like they're about three and five, you know, cause all the older siblings kind of baby them a little bit and they kind of get their way because as the kids started growing up, take a seven or eight year old, he's already got like five or six younger siblings and you grow up pretty fast to your eight year old.

You say, Hey cool. " I gotta deal with the babies. But now the 13 and 11 year old connect like babies because there's no one below them that needs the attention. So we've got to push them along. Well, Sean boy, thanks for being on. And thanks for sharing all that information. Good stuff. You're doing. Thank you.

Sean Duffy, RPh: This, uh, this, this went really fast. I can't believe we've been talking this long, but it was great getting to know you more, um, during this interview as well. And, and looking forward to meeting you at some point in the near future. 

Mike Koelzer, Host: Yeah. Maybe we'll run into each other in the frozen Tundra of Detroit, but hopefully it's somewhere warmer than that.

Sean Duffy, RPh: Yeah. Well, if you make it down to any of the Orlando conferences or anything, 

Mike Koelzer, Host: That sounds better. All right, Sean, take care. Thanks. 

Sean Duffy, RPh: Thank you. Have a good day.