The “closing months” of last year saw “one or two multiples…offload a significant number of pharmacies”, Hutchings Consultants wrote in its annual UK market update report published today (January 16).

C+D asked Hutchings to clarify which multiples it is referring to, but a spokesperson said they were unable to confirm this.

Setting out its projections for 2023, Hutchings said it expected a “further increase in the number of pharmacies brought to the market, as some multiple operators continue divestment plans across many parts of the UK”.

“Depending on the quality of these opportunities, the increased supply could lead to goodwill values coming under pressure in the short to medium term,” it continued.

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Buyer activity ignited

Despite 2022 being “one of the least predictable years ever”, pharmacy sales “remained very robust” in the face of the pandemic’s lingering effects, as well as “rising business costs, economic uncertainty, [an] unstable UK government and volatile geopolitical situation”, Hutchings said.

“Hutchings Consultants saw an 18% increase in new instructions in 2022 compared to the previous year, which contributed to a 30% increase in completed sales over the same period,” it wrote.

“A greater range of more profitable pharmacies [also] entered the market, igniting buyer activity,” it continued.

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The broker also saw an 11% increase in new registrations compared to 2021. First-time buyers accounted for 78% of these new registrants, while existing pharmacy owners seeking to acquire more accounted for 15%, it said.

However, “the high level of first-time buyer registrations failed to flow through into acquisitions during the year”, Hutchings wrote.

Group owners purchased all the pharmacies Hutchings sold in Scotland in 2022, the broker said, while in Wales half were bought by first time buyers.

In England meanwhile, group owners snapped up 45% of the pharmacies sold, while first-time buyers and existing pharmacy owners bought 25% respectively.

“The remainder were bought by either previous pharmacy owners seeking to re-enter the sector, or by multiples who have once again started to acquire,” Hutchings wrote.

The report also said:

• Pharmacy sellers in England on average got 32% more offers per sale in 2022 compared to the previous year, though the number of offers remained static in Wales
• Sellers in Scotland bagged higher sale prices but saw lower numbers of offers, as “the majority of transactions here were agreed using a successful ‘off market’ approach”

Borrowing costs rose for buyers

“Most acquisitions in the market continue to require bank funding to support the deal,” Hutchings explained.

Borrowing costs for buyers and the Bank of England’s base rate rose in 2022 due to “economic disarray” in the UK, it continued.

Banks, however, “remain keen” to continue financing sales in the pharmacy sector, “perhaps even more so compared with other sectors”, Hutchings noted.

It cautioned that “heightened banking requirements” have added to “the length of time taken to approve applications”, as most banks are asking for “current financial information on the target business, such as management accounts, to understand the effect of rising costs on profitability” before approving loans.

Read more: Yorkshire pharmacy chain expands portfolio in seven-figure refinancing deal

Buyers may be more cautious in 2023

Hutchings predicted that “buyer confidence and appetite [would] remain steady over the coming 12 months”.

However, it said some buyers may adopt “a more cautious approach when bidding on opportunities”, as “the effect of rising business costs on profitability are yet to be fully realised”.

The broker also estimated that a shortage of pharmacists would continue to inflict “financial and operational pressures on contractors” in all three nations throughout 2023, as with 2022.

However, it had a “positive outlook” for the rest of the year.

“Community pharmacy’s ability to help alleviate pressures elsewhere in the NHS has the potential to create many opportunities going forwards and the sector remains attractive to buyers seeking to build a successful business,” it said.

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