Start with the contract, not the goodwill

The single most important commercial fact in a pharmacy deal is that the NHS contract does not simply come with the business. On an asset sale, a change of ownership requires an application to NHS England under regulation 26(1) of the NHS (Pharmaceutical and Local Pharmaceutical Services) Regulations 2013.

An excepted application — but still an application
A change of ownership is exempt from the market entry and Pharmaceutical Needs Assessment test that routine applications must satisfy. It is not exempt from being made. Determination period 30 days, extendable to four months in defined circumstances; once granted, no fewer than 30 days' notice of commencement before services start.
s74H — 28 days, and the duty is on the buyer
Where ownership changes, the Part 3 entry ceases to be valid unless the registrar is notified in writing within 28 days (three months where the change follows a death). If it ceases to be valid the premises are treated for all purposes as no longer registered. £90 to amend the entry; £935 to restore it.

The ODS code decision

Buying on a debts and liabilities basis means electronic prescription nominations do not need to move to a new code — but you become liable for money owed to the commissioner by the previous owner. Buying on any other basis means a new ODS code and re-nomination of every EPS patient. That is a real trade-off between assuming unknown liabilities and losing nominated patients, and it belongs in the price rather than in the surprises.

Why the listing is the asset

Control of entry. A new pharmacy must generally show it meets a need, or secures improvements or better access, identified in the local Pharmaceutical Needs Assessment — and PNAs must be revised within three years of the previous publication. That barrier is what you are buying. It is also why a valuation built only on maintainable profit, with no view on the contract and the PNA position, is only half a valuation.

Worth knowingShare sale or asset sale changes all of this. On a share sale the person on the pharmaceutical list — the company — does not change, so no regulation 26 application arises. It also means you inherit the company's history in full. Which structure suits you is a modelling question, and it should be answered before heads of terms rather than after.

Scotland, Wales and Northern Ireland

All three operate different regimes, and the Northern Irish equivalent of the registration trap is s76(3) — void after three months following a death, 28 days otherwise. If your deal crosses a border, say so early.

Common questions

Does the NHS contract transfer with the business?

No, and this is the single most important commercial fact in any pharmacy deal. On an asset sale a change of ownership requires an application to NHS England under regulation 26(1) of the NHS (Pharmaceutical and Local Pharmaceutical Services) Regulations 2013. It is an excepted application, so it is exempt from the market entry and Pharmaceutical Needs Assessment test — but an application is still required, the determination period is 30 days (extendable to four months in defined circumstances), and once granted you must give no fewer than 30 days' notice of commencement before services start.

Is a share sale different?

Structurally, yes. On a share sale the person on the pharmaceutical list — the company — does not change, so no regulation 26 application arises from the change of ownership. That is one of the reasons share deals are common in this sector. Note that NHS England's Pharmacy Manual does not state the share-sale position expressly; this follows from how regulation 26 is structured, which addresses one person taking over from another. The trade-off is that you take the company as it stands, including its history — so the diligence moves from the contract application to the company's past filings, tax position and any liabilities already sitting inside it.

What is the 28-day trap?

Medicines Act 1968 s74H. Where ownership of a retail pharmacy business changes, the Part 3 entry ceases to be valid unless the registrar is notified in writing within the relevant period — 28 days in the ordinary case, three months where the change follows a death. The duty sits on the INCOMING owner. If the entry ceases to be valid the premises are treated for all purposes as no longer registered. Cost of getting it right: £90 to amend the entry. Cost of getting it wrong: £935 to restore, plus a period during which the premises cannot lawfully trade as a registered pharmacy.

What is the ODS code decision?

Buying on a debts and liabilities basis means the electronic prescription nominations do not need to be transferred to a new code — but the new owner becomes liable for any money owed to the commissioner by the previous owner. Buying on any other basis means a new ODS code, and re-nomination of every EPS patient. That is a genuine commercial trade-off between assuming unknown liabilities and losing nominated patients, and it should be priced into the deal rather than discovered after it.

Why is an existing contract worth paying for at all?

Control of entry. A new pharmacy must generally show it meets a need, or secures improvements or better access, identified in the local Pharmaceutical Needs Assessment. PNAs must be revised within three years of the previous publication, and sooner where there have been significant changes unless revision would be disproportionate. That barrier is what gives an existing NHS contract its value — you are buying a position that a new entrant cannot simply create. It also means a valuation built only on maintainable profit is half a valuation: two pharmacies with identical profits can be worth very different amounts depending on how protected their position is under the local PNA.