Pandemic drives ‘increased demand’ for pharmacies, says broker
The number of parties looking to purchase pharmacies increased “substantially” in 2020, as the COVID-19 pandemic reinforced the perception the sector is a worthwhile investment.
While 2020 saw fewer pharmacies coming to the market in England, there was a 45% increase in new buyer registrations during the first lockdown in March 2020, which continued throughout the year, pharmacy brokers Hutchings Consultants has said in its new year update published today (January 20).
Of this, 75% were first-time buyers, and 15% were existing pharmacy owners “eager to add to their existing branches and capitalise on the positive effects the pandemic might bring to the sector in the long run”, Hutchings said.
The multiples continued to close branches last year, which “allowed buyers an opportunity to gain a foothold or further expand their existing portfolios”, the brokers added.
In August, Lloydspharmacy said it would close a “small number” of community pharmacies following “increasing financial pressures” from factors including COVID-19. Meanwhile, after a temporary pause due to the pandemic, Boots continued its programme of branch closures, and has now completed 158 of 200.
More than 200 pharmacies in England closed last year, according to the Pharmaceutical Services Negotiating Committee.
Contractors delay selling
Some contractors “chose to delay selling so that they might do their part providing an essential service for the community” and were then able to take advantage of the £370 million advance COVID-19 funding, introduced in June, Hutchings reported.
Even though the brokers saw a 6% increase in instructions to sell from 2019, many pharmacy owners told them they wanted to sell, but were postponing for pandemic-related reasons, Hutchings told C+D.
It is is “confident” this rise would have otherwise been bigger.
Those contractors that did then approach the market towards the end of the year “demonstrated an improvement in their turnover and item levels”, Hutchings noted.
Long-term owners want “renewed energy”
The premises that did come to market were “smaller turnover, less profitable pharmacies”, with an 8% rise in the number of sales of pharmacies with a turnover less than £750,000 a year compared with 2019, Hutchings reported.
These pharmacies also attracted on average a higher number of offers per sale than the previous year – up to 5.2 compared to 4.2 average offers made per branch – “demonstrating the increased demand seen for pharmacy businesses since the pandemic began”, the report said.
Paul Steet, a senior pharmacy consultant at Hutchings who helped write the update, explained that this trend was the tail end of a “wave” of such valuations in 2019, and were usually long-term owners who felt the business “really needs someone to come in with renewed energy” to continue running the pharmacy.
Many independent contractors who, after 20 or 30 years in the business, are having to reposition their pharmacy to become more service-led, are saying: “perhaps now is the time that a new owner can come in a really pick that up,” Mr Steet told C+D.
Predictions for 2021
Hutchings is “positive” about the market going into 2021, Mr Steet said, and it expects a “stabilisation on prices”.
With rent values in flux due to the pandemic, the Hutchings report noted that “some well-known pharmacy operators [were] approaching their landlords seeking a reduction”. It was “highly likely” more contractors will seek to renegotiate more favourable rent terms, it added.
Banks remained “keen” to lend money to those looking to acquire a pharmacy in 2020, Hutchings said, but noted a “tightening of their lending criteria” in the face of a volatile wider economic outlook.
Though banks remained eager to finance these transactions, potential buyers “may have to dig deeper” when it came to deposits, Mr Steet told C+D.
Brexit could prompt supply issues
Hutchings also claimed that the last-minute trade deal between the UK and the EU before Christmas “should enable business owners […] to plan ahead with more certainty this year”, but forecast “hurdles to overcome”, particularly in the first quarter of 2021, as UK authorities adjust to the new import and export regulations.
Those hurdles, Mr Steet said, were concerns about possible interruptions to the supply of medicine across the border, which might affect pharmacies’ turnover.