Whilst 2019 was a more challenging year, the sector did see large deals take place. We were instructed on 70 Rowlands Pharmacies in February and after a short marketing period, sales were agreed on the majority which continue to progress to exchange and completion as we enter 2020.
The sector continued to endure the impact of the latest Category M clawback of £50m until the end of March 2019. Alongside this, the sector still saw challenges from drug supply shortages and resultant pricing issues.
In July, the Department of Health and Social Care (DHSC) announced its new Five-Year Deal, fixing the global funding sum at £2.592 billion per annum for each of the five years. In doing so, it has signposted changes in the allocation of funding to more service-led activities. Whilst the settlement has received a cautious welcome from many in the sector, the full impact is difficult to measure and will be dependent on the roll out of new services over the course of the deal.
However, the funding climate north of the border was far more settled. As a result, in Scotland, we continued to see significant increases in value, with pharmacies changing hands at £2.00 to £2.20 in £ of turnover or up to multiples of 12 times EBITDA.
From our unrivalled presence and market reach, we were able to benefit from the rise in pharmacies coming to market, delivering a 46.4% increase in instructions in 2019, which we predict will continue in 2020.
IMPACTS TO THE BOTTOM LINE
- The bottom line will be impacted depending on the allocation of fundingand implementation of new service activities as outlined in the Five-Year Deal
- The fixing of the global funding sum at £2.592 billion for each of the next five years, although providing certainty, does, however, represent a real term cut in remuneration of c. 5%
- Proposed increases in National Living Wages will continue to squeeze operating margins
- Drug pricing and supply issues will continue to place pressure on gross profit margins and resultant net profit margins
- In England we expect to see corporate and multiple operators continue to churn non-performing/ marginal pharmacies, with many being acquired by independent contractors. We expect the proportion of managed business sales to increase further in 2020
- Further retirement sales from those who don’t adapt to the new funding regime and service-led contract
- An increase in the number of sales to first-time buyers, driven by a continued optimism and keenness to run/own their own businesses
On behalf of Rowlands Pharmacy we brought 70 pharmacies (69 in England and one in Wales), to the market. This presented a rare opportunity for first-time buyers and independent operators to acquire corporate pharmacy assets. The process is expected to conclude in 2020.
Painswick Pharmacy, located in the centre of the Cotswold town of Painswick near Stroud, was sold
following over 25 years of ownership for a private client. The deal also included the desirable freehold property which had planning consent for development.