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ALBAPHARM

ALBAPHARM. PHARMACY 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.

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ALBAPHARM

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  1. ALBAPHARM PHARMACY ACQUISITION ASSISTANCE PACKAGE

  2. STRATEGIC PARTNERS • LEGAL - Holmes Mackillop LLP - Steve Williamson • ACCOUNTING – Campbell Dallas LLP – Peter Gallanagh • FINANCIAL – Statim Finance Unichem Customer Finance

  3. 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

  4. 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

  5. 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

  6. ALBAPHARM (AAH/UNICHEM) PI OP 1 OP 2 OP 3 FRAMEWORK Dividend out Shareholders Dividend Operating Pharmacies Shareholders Key OP means Operating Pharmacy AP means Acquiring Pharmacist PI means Private Investor Albapharm Funders AP P1 Albapharm P1 AP Bank/Suppliers Guarantee

  7. 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

  8. 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

  9. Financial Implications Peter Gallanagh Campbell Dallas Chartered Accountants and Business advisors

  10. 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

  11. 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.

  12. 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.

  13. 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.

  14. 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%

  15. 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.

  16. 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.

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