Hutchings’ annual England pharmacy market update report for 2023, published today (May 31), said that pharmacy buyers’ “confidence and desire to acquire continue to override genuine concerns” over government funding and the UK's “wider economic issues”.

It revealed that “the number of [buyer] registrations in the first quarter of 2023 has rocketed by a colossal 202%”.

Pharmacy buyers were “mainly attracted by the large upsurge in acquisition opportunities that has arisen from various multiples implementing divestment plans”, it said.

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However, the report predicted that the “unprecedented increase” shown over a very short period is “expected to recede over the coming months as the number of available pharmacies returns to typical levels once more”.

In 2022, the consultancy firm experienced an “impressive” 18% increase in new buyer registrations compared to 2021, it said.

 

Average offer number dips

 

Hutchings said that the two largest groups of new registrants were first-time buyers at 73% and existing pharmacy owners at 18%, as has been the case “for some time now”.

Outside investors seeking to enter the sector were the third largest group to register at 5%, but Hutchings pointed out that “interest from this group of buyers has in previous years failed to convert into pharmacy acquisitions in any significant numbers”.

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The report said that group owners have been the “most active” buyers of community pharmacies since the start of 2022 at 45%, followed by first-time buyers (29%) and existing pharmacy owners (22%).

So far in 2023, group owner buyer activity decreased to 30% of buyers, first-time buyers increased to 35% and existing pharmacy owners rose to 35%, the report said.

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It added that the average number of offers per sale increased from 4.7 in 2021 to 6.4 last year thanks to “renewed buyer appetite and the greater availability of suitable opportunities”, although it dropped again to 5.1 for completed and current sales agreed since Jan 1 2023.

The reduction in the number of offers received so far this year could be due to the “distraction caused in the market by various multiples divesting numerous shops in a relatively short period of time”, according to the report.

 

“Commendably stoic”

 

The report also acknowledged the resilience of the pharmacy sector in England, saying that over the past year, it has “remained commendably stoic in the sustained provision of essential patient healthcare whilst simultaneously battling…various persistent headwinds”.

These include “the lingering effects of the pandemic, government funding concerns and, in some cases, financial viability issues”, it added.

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And it said that the recently announced £645 million in funding along with new services such as a new Pharmacy First scheme will “undoubtedly give renewed confidence to many in the sector”.

“[It] might suggest we are reaching a turning point in the government’s approach to funding, which should in turn help stimulate further the desire to acquire in the coming years,” it added.

The report also revealed that:

• Pharmacies in London and the Southeast “remain the most popular with buyers”, generally attracting the highest sale prices at an average of £0.97 paid for each pound of turnover, closely followed by the Midlands with an average of £0.93
• Average England gross profit margins saw a steady increase from 32.2% in 2021, to 33.4% in 2022 and 34.9% so far in 2023
• Despite “medicine shortages, increased wholesale drug costs, low drug tariff reimbursements and dispensing at a significant loss in some circumstances heavily influencing pharmacy profit margins, contractor’s continuing hard work and focus on the buying aspect of their business has assisted in offsetting this pressure to some degree”

 

Banks “very keen to lend”

 

Banks “remain very keen to lend to the pharmacy sector”, Hutchings said.

But it added that the “pandemic, Brexit, UK government instability and the war in Ukraine have increased inflationary pressures, which has led to higher borrowing costs for pharmacy buyers”.

“Loan-to-value ratios have come under pressure with banks insisting on larger deposits from borrowers, usually somewhere between 20% and 30% of the value of the target business,” the report said.

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And prior to granting approval for loan applications, most banks demand “up-to-date financial information on the target business such as management accounts to understand the continuing effect of rising costs on profitability”, it added.

The report also suggested that it is “possible” that there could be “further changes” to capital gains tax relief “in the next year or so” – which could see tax bills “double” if the relief is “scrapped”.

 

Desire to buy “sacrosanct”

 

Hutchings predicted that the remainder of 2023 will see the sales market “normalise due to at least some multiples concluding their divestment strategies”, causing the “substantial increase in the number of available pharmacies [to] dissipate over the coming months”.

It said that it expects “buyer confidence and appetite to remain strong” over the next 12 months.

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However, “uncertainty” caused by “the impact of rising loan interest rates and business costs on profitability” may lead to “some buyers adopting a more cautious approach when bidding on opportunities”, the report cautioned.

And it said that the “continuing shortage of locum pharmacists around the country remains a significant issue for contractors and is likely to heavily influence many owners’ decisions to sell as we progress through the year”.

“For many buyers, the underlying desire to buy and own a pharmacy is sacrosanct and while banks maintain a readiness to lend, there is no reason to expect this to change in the year ahead,” it concluded.