Pharmacy Owner’s Guide To Exit Strategies Presented by: Guy W. Stillwell, R.Ph. Pharmacy Consulting Associates, Inc. PCA www.pcapartners.com

Disclosures Stock Holder: PCA-Pharmacy Consulting Associates, Inc. / President

Program Outline Market Trends Timing Considerations Market Valuation Potential Buyers Preparing To Market Your Pharmacy Professional Resources Owner Financing/ Junior Partnership The Selling Process

Market Trends Is Independent Pharmacy Strong Again? 1985-1998 : Independent Pharmacy decreased by 8,000 units 1999-2005 : Independent Pharmacy decreased by 1,700 units 2004-2006 : Independent Pharmacy decreased by 900 units 2007-2009: Independent Pharmacy decreased by 770 units The strength of Independent Ownership

Market Trends Transfer of Ownership Pharmacists are becoming more interested in ownership. Chain file buys are no longer your only option. Metro community pharmacy owners are challenged by not having full access to buyers. Are smaller community pharmacies able to attract young healthcare professionals?

Market Trends Where are we today? Independent Pharmacy Projections for 2010 Metro vs. Rural Trends The Future Pharmacy Market Values

Timing Considerations The 5-10 Year Planning Process Potential Buyers Junior Partner Key Employee Lease Terms Corporate Structure C-Corp S-Corp

Timing Considerations The 3-5 Year Planning Process Financial Metrics Balance Sheet P&L Cash Flow Market Valuation Industry Valuation Metrics Cash Flow Analysis Buyer’s ROIC/ROCC Obtain Expert Advice

Timing Considerations The 3-5 Year Planning Process Operational Factors Affecting Market Value Private Charging Unit Dose Packaging Delivery Service Niche Services Compounding DME Specialty Pharmacy Nursing Home

Timing Considerations The One Year Planning Process Market Valuation Identify Buyers Exception: JP Program needs to be established 5-10 years prior to transfer date Obtain Expert Advice Accountant Legal Counsel Business Consultant specializing in Pharmacy acquisitions and mergers (The buy/sell process)

The Market Valuation What is My Pharmacy Worth? Industry Metrics $/Rx plus Inventory Range: $0-$30/Rx Multiple of Net Income Range: 0-5x Net Income % of Sales plus Inventory Range: 0%-40% of Total Sales

The Market Valuation What is My Pharmacy Worth? Why the Metrics Do Not Work Ranges are Variable Standard Metrics are Unreliable Lack Specific Market and Pharmacy Data How to Understand the Metric Values for Your Pharmacy Know the Market Engage Expert Pharmacy Appraisal Consultant

The Market Valuation What is My Pharmacy Worth? Buyer’s Perspective Continuation of Business Cash Flow ROIC/ROCC Financing File Purchase Retention Operational Blending ROIC

Potential Buyers Identify all Buyers in the Market Key Employees Local Independents Regional Independents Independent Pharmacy Investors Chain Pharmacies Specialty Pharmacy Operations

Potential Buyers Engaging All Your Buyer Resources Explore all of your options Strategically weigh the pros and cons Independent Chains

Preparing To Market Your Pharmacy Protecting your Business and Maximizing Value Confidentiality and Non-Disclosure Agreements Providing Documentation-The Presentation Notification of Staff, Family, and Friends Engage Expert Assistance

Professional Resources Legal Counsel Accountant Limited Knowledge Regarding Pharmacies Business Consultant Expert on Pharmacy Valuation Increases Potential Buyer Pool Minimizes Your Worry – Manage Entire Process Maximizes Your Value – Expert Negotiations

The Selling Process Critical Steps in Maximizing Your Value Strategically Provide Documentation based on Buyer’s Due Diligence Only provide exactly what is requested Obtain LOI prior to full disclosure Understand Buyer’s operation, needs, and expectations Understand Buyer’s financial position Does Buyer’s financial position facilitate sale

The Selling Process Critical Steps in Maximizing Your Value The Asset Purchase Agreement (APA) Stock Sale vs. Asset Sale Asset Allocation “Going Concern” vs. “File Buy” Lease Assignment or Restrictions Prescription Retention Holdbacks UCC (Liens) Filings

The Selling Process Critical Steps in Maximizing Your Value The Non-Compete Agreement Determination of Restrictions Term Geographic Radius Seller’s Plans Determination of Value Corporate Structure Paid to Seller Personally Tax Concerns

The Selling Process Final Steps Preparing for the Closing Date Removal of Buyer’s Contingencies Regulatory Notifications BOP DEA Medicaid Medicare Inventory Dating Inventory Level

Owner Financing/Junior Partnership Is Owner Financing for Me? Security Positions Bank is always first Personal Guarantees & Cross Collateral Risks Default Benefits Increases Potential Buyers Possible Tax Benefits Provides “Bridge Financing” to Bank Loans

Owner Financing/Junior Partnership Is a Junior Partnership Right for Me? Tax Advantages Available Programs Key Employee Confidence Trust Ability

Questions and Answers Additional Questions Contact Information: Guy Stillwell, R.Ph. (651) 270-0038 or guy@pcapartners.com