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Why 2019 saw a ‘substantial increase’ in pharmacies up for sale

"Many of our clients sold in 2019 due to the five-year funding contract"

More pharmacies were on the market last year despite a drop in value across the UK, pharmacy consultant Paul Steet says

A month into 2020, it's time to reflect on 2019 and look to the year ahead in pharmacy. Last year, Hutchings Consultants saw a substantial increase in the number of pharmacy owners deciding to sell their business.

We experienced high levels of activity from both sellers and buyers throughout the year. Many of the new pharmacies on the market provided fantastic acquisition opportunities, particularly for first-time buyers. Of the new buyers who registered with us, 78% were first-time buyers, which demonstrates that there was an appetite in the market, despite the impact of the funding cuts on the sector.

Many of these opportunities came from the multiples – such as Lloydspharmacy, Rowlands and Boots – divesting less profitable branches. These pharmacies proved attractive to smaller and more nimble owners, keen to step in and improve turnover and performance.

Scotland bucks trend

While the average pence in pound* achieved on completed UK sales fell from £1.13 in 2018 to £0.94 in 2019, Scotland has bucked the trend with an average figure of £1.33. Hutchings believes this is due to the combination of a low number of sellers and comparatively high levels of support for community pharmacy in Scotland.

Wales saw a similar downward pressure on pharmacy values as in England, which is surprising given the support for community pharmacy from the Welsh government.

Many of our clients decided to sell in 2019 due to the five-year funding contract, which put the onus on contractors to refocus their business on providing services – contrary to the way many owners previously operated. As a result, many contractors felt that a new owner would be best positioned to take the business forward.

Other factors of note include pressure on margins due to the impact of the funding cuts, and ongoing medicines shortages. The burden of administration has increased through the Falsified Medicines Directive, GDPR, pension auto-enrolment, and the overhaul of General Pharmaceutical Council inspection processes, to name but a few.

Upcoming barriers

Looking ahead to the remainder of the year, there are several new and existing challenges for pharmacy. The new funding contract presents both an opportunity for and a potential threat to sellers, depending on their outlook and business plans. The more experienced buyers we are speaking to have indicated that, as the contract provides more certainty for the future, their intention is to come back into the market with renewed vigour and anticipation.

As part of the focus on a service-led sector, many owners have been required to undertake staffing and training changes, in addition to cosmetic ones. These have been evidenced by higher staff costs incurred by factors including locum pharmacist rates, particularly for pharmacies operating in rural areas.

We expect pharmacy closures to remain an issue. Given the contractual changes required of owners, many pharmacies with a smaller turnover may decide it just isn’t viable for them to continue trading and either look at consolidation options or close their doors.

However, the major banks continue to support funding in the pharmacy sector, which is vital in order to maintain the market and pharmacy resale values. It is inevitable at some point that the volume of pharmacies for sale will diminish.

With buyers advising us of their continued appetite to acquire in the coming year, it is not unreasonable to predict greater stability in goodwill values**, although as 2019 has showed us, forecasting when is incredibly difficult.

*Pence in pound valuations are used to calculate the value of a business by dividing the offer or price achieved from the pharmacy sale by the pharmacy’s annual turnover. For example, an offer of £750,000 divided by the turnover of £1,000,000 = pence in the pound value of £0.75.

**Goodwill value is attributable to the reputation a pharmacy has built up over the years, in the context of trading in a marketplace where the number of new pharmacies opening is restricted.

Paul Steet is a senior pharmacy consultant at pharmacy broker Hutchings Consultants


Benie I, Locum pharmacist

Goodwill is falling. Sellers are dumping dead rubbers onto the market.

Dave Downham, Manager

**BS. Goodwill is the difference between what someone is willing to pay and the fair value of net tangible assets. That is the art of the valuation rather than the science.

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