We see two commonly used philosophies for valuating a pharmacy:
1. Multiple of EBITDA
2. Cost per Script
Multiple of EBITDA – Typically this is used when an individual or other independent is evaluating the pharmacy. These buyers will want to see at least three years of financial documents. This will include an income statement that should outline EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) and a cash flow statement. This tells the potential buyer what their return on investment will be and thus what the value of the pharmacy is to them.
The sale price then is determined by a multiplier of EBITDA, typically between 1 and 3. The multiplier can be influenced by a number of factors including local market demand, buyers exit options, if a chain is bidding and urgency of the seller. An example of this model is demonstrated below.
EBITDA = $300,000
Multiplier = 3
Purchase Price = $900,000
Cost per Script – This is most often used by chains as they are concerned with buying files not buying the business as a whole, though they will sometimes want to see more in order to determine the final of the prescription file value. In this model the buyer pays the seller a set dollar amount per script filled annually. This dollar amount will range from $5 to over $50 again depending on market factors and if the market is a target area for the chain. An example of this model is demonstrated below.
Annual Scripts = 60,000
Price per Script = $15
Purchase Price = $900,000
