Excellent experience start to finish – always very responsive to any queries and the turnaround on the property I was buying was very quick, even in the busy time leading up to stamp duty deadline. Jenny was always very helpful and went above and beyond to close on a short timescale.
Despite recent forecasts to the contrary, the retail pharmacy market remains extremely active after a healthy surge in sales in 2017. Acquisitions in this key North West sector are expected to remain very strong throughout the remainder of 2018.
Historically seen as a largely stable sector by mainstream banks, what are the reasons for the continued surge in mergers and acquisitions of retail pharmacies? Some of the key factors can be summarised as follows:
- Pharmacy applicant registrations continue to remain strong – this appears to be augmented by a steady increase in first time buyers.
- First time buyers often include locums and pharmacy managers who are on their own quest for ownership. This is often caused by their employers (whether individuals or SMEs) looking to manage cost levels – including squeezing locum rates.
- Funding remains fairly liquid with the high street banks continuing to see pharmacies as a solid risk. Similarly, a number of new players to the banking market also regard this sector as rewarding. Funding from relatives/close family should also not be underestimated in this sector.
- The pharmacy sector continues to remain attractive to Private Equity players who are looking for organic growth and consolidation in the market. This includes interest from PE houses who are active in other sectors and looking to get an initial foothold, whether by way of joint ventures or other corporate structures.
The positive trends detailed above would come as something of a surprise to market analysts who forecasted tough market conditions after the funding cuts introduced by the Department of Health in 2016/17 – including the £180 million Category M clawback issues. Understandably this was seen to put a substantive squeeze on cash flow and margins in the short to medium term. Perhaps the impact of these funding cuts has been reduced by other factors. These include various planning/cost efficiencies including the following:
- Bulk buying and similar processes remain useful tools for any pharmacist. This enables pharmacists to streamline activities and create cost efficiencies. This includes the substitution of branded UK products with more profitable non-branded like products.
- Reviewing reimbursement procedures for prescription items is a key primary step for any pharmacy. An effective PMR system is vital in ensuring that reasonable estimates of NHS income are made and payments can be duly monitored. These key tools ensure pharmacies are remunerated correctly.
- Pharmacists have historically reviewed ancillary services to create extra income. These include flu vaccination, anti-smoking/smoking cessation and MUR service lines. This can also increase customer loyalty. Allied to an effective PMR system, these enable customer bases to be properly segmented for any advanced services.
- Analysis of retail sales apply just as readily to pharmacies. Essentially, a chemist can then stock their most profitable products. Tools such as EPOS Systems enable sales data to be analysed to this end.
Other niche healthcare factors continue to reinforce the importance of a pharmacy in any community. Self-care remains a key topic in the NHS. Consumer research into this area perhaps drives away queries from GP surgeries and instead towards a visit to a pharmacy. A related topic remains minor ailments – where the pharmacy is a useful alternative to over-stretched GP surgeries.
Despite the short-term effects of the funding cuts and other industry factors regarding “over the counter” healthcare, appetite for pharmacies remains stable and there remains no shortage of buyers both in the North West and elsewhere in the UK. Focussed marketing from skilful sales agents and highly competitive bidding processes continue to drive up prices. This trend is expected to continue throughout 2018.
Sonio Singh has extensive experience in the Healthcare Sector including the retail pharmacy industry. Sonio and his colleagues in our Corporate & Commercial department can be contacted on 0161 832 3304.
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