Letter of Intent Template for Buying or Selling an Independent Pharmacy

Parties and Transaction Overview

Identifies the buyer and seller, the legal entity being acquired, the pharmacy's operating name, DEA registration number, and state pharmacy board license number. Establishes whether the transaction is structured as an asset purchase or, in rare cases, a stock purchase, and confirms that the buyer holds or will obtain the required pharmacist licensure prior to closing.

💡 Confirm at the LOI stage whether the buyer has an active pharmacist license in the applicable state — many deals stall post-LOI when this is discovered late. If a PE-backed platform is the buyer, clarify which entity will hold the DEA registration and pharmacy license at closing. Sellers should push for a specific statement that the buyer will bear all costs associated with obtaining new DEA registration and state board licensure.

Purchase Price and Asset Allocation

Defines the total purchase price and breaks it into its component parts: the prescription file value, tangible assets (fixtures, equipment, technology systems), goodwill, and a separately priced inventory component. Pharmacy LOIs must explicitly separate inventory from the total purchase price because inventory is typically priced at cost at closing based on a physical count, not included in a fixed enterprise value.

💡 Buyers should resist including inventory in a fixed price — inventory levels fluctuate and you do not want to overpay if stock is bloated with slow-moving or expiring product. Sellers should push to define 'cost' clearly, whether that is invoice cost or WAC, and specify that all inventory must be saleable and within expiration. Both parties should agree on the inventory counting methodology and who conducts it. A pharmacy-specialized broker or accountant should validate prescription file value, which is typically calculated as a multiple of annual net prescription revenue, often 0.5x to 1.5x depending on active patient count and refill rates.

Earnout Provision for Prescription File Retention

Establishes a contingent payment tied to the retention of prescription volume, active patient count, or revenue from the acquired prescription file over a defined post-closing period, typically 12 to 24 months. This is one of the most negotiated provisions in any pharmacy LOI because prescription file value is inherently difficult to guarantee — patients can transfer to a competitor or chain pharmacy after the ownership change.

💡 Sellers should push to narrow the earnout window to 12 months rather than 24 and to define 'active patient' clearly — typically a patient with at least one fill in the prior 12 months. Sellers should also negotiate hard to exclude patient attrition caused by factors outside their control, such as PBM network changes, payer contract terminations, or acts of Buyer. Buyers should insist on a clear baseline measurement methodology established before closing, not estimated retrospectively.

Due Diligence Period and Access

Defines the length of the due diligence period, what records and access the buyer is entitled to review, and the confidentiality obligations that govern information shared during this period. Pharmacy due diligence is highly specialized and typically includes PBM contract review, DEA compliance files, state board inspection history, prescription fill data by payer, and accounts receivable aging from third-party payers.

💡 Buyers should not shorten the due diligence period below 45 days for a pharmacy acquisition — there is simply too much regulatory and financial complexity to compress this timeline. Sellers should require a signed NDA and evidence of buyer's financial capability before sharing prescription-level data or PBM contracts. PBM contracts are often subject to confidentiality provisions themselves, so sellers should confirm with their PBM representatives what can be shared and in what format before the LOI is signed.

Regulatory Approvals and DEA Transfer Provisions

Addresses the regulatory conditions that must be satisfied before closing, including new DEA registration for the buyer, state pharmacy board change-of-ownership approval, and PBM credentialing. This section should establish which party is responsible for initiating and funding each regulatory filing and what happens if approvals are delayed or denied.

💡 DEA change-of-ownership timelines vary by state and DEA field office — allow 60 to 120 days for this process and do not agree to a closing date that assumes faster approval. PBM credentialing timelines are equally unpredictable and can result in a temporary gap in insurance billing capability at the newly owned pharmacy. Sellers should push for continued operation under seller's DEA registration through a managed services or consulting arrangement if closing is delayed, though this requires careful legal structuring to comply with DEA rules. Buyers should confirm preferred network eligibility with each PBM during due diligence, not after LOI execution.

Financing Contingency and SBA Loan Provisions

States whether the offer is contingent on the buyer obtaining financing, identifies the financing source — typically an SBA 7(a) loan — and establishes the timeline for lender approval, commitment letter delivery, and any seller carry component. SBA lenders have specific pharmacy-related requirements that affect deal structure and timeline.

💡 SBA lenders underwriting pharmacy acquisitions will scrutinize PBM reimbursement trends, DIR fee exposure, and prescription fill volume closely. Sellers should expect lenders to request a borrower analysis of revenue sustainability before committing. The seller carry is often a dealmaker for SBA loans in pharmacy transactions — sellers should negotiate the interest rate and repayment term carefully, and confirm that the standby period does not extend beyond 24 months without a meaningful step-up in rate. Buyers using SBA 7(a) financing should engage an SBA lender with pharmacy acquisition experience early — not all SBA lenders understand pharmacy-specific collateral and revenue structures.

Non-Compete and Non-Solicitation Agreement

Establishes the geographic scope, duration, and activities covered by the seller's covenant not to compete and non-solicitation of patients and staff. In pharmacy acquisitions, the non-compete must be carefully tailored to protect the buyer's prescription file investment without being so broad that it is legally unenforceable.

💡 Five years and a 10-mile radius is a reasonable starting point for most independent pharmacy non-competes, but geography must reflect local market density — in rural markets, 15 to 20 miles may be appropriate. Sellers who are retiring and have no intention of returning to pharmacy practice will have less negotiating leverage on this point. Sellers who are younger or have professional relationships they wish to maintain should push to narrow the radius and the solicitation prohibition to active patients only, not former patients who have not filled in 24 months or longer.

Transition and Seller Cooperation

Defines the seller's obligations to support the transition of the business to the buyer, including patient communication, staff introduction, supplier relationship handover, and compliance with PBM credentialing requirements. Pharmacy transitions require active seller participation to protect prescription file retention and are often the most critical factor in earnout achievement.

💡 Buyers should insist on a meaningful transition period — 90 days is ideal for a pharmacy with a long-tenured owner who has deep patient relationships. Sellers should ensure that compensation for transition services beyond the initial period is specifically addressed in the LOI rather than left to a separate consulting agreement to be negotiated later. Both parties should agree on the specific patient communication language before closing, as poorly worded transition notices are a leading cause of unnecessary patient attrition.