Business Outlook 2020 reports a rise in pharmacies coming to market

The report, ‘Business Outlook 2020: Focus on Business’, reflects on the themes, activity and challenges of the previous year and forecasts what 2020 might bring across the sectors in which Christie & Co operates, including the pharmacy sector.

2019 is identified in the report as a more challenging year for the pharmacy sector, with average price indices seeing a reduction of 3.6% over the year. Operators had to endure the continued  impacts of a  £50 million Category M clawback until the end of March, alongside drug supply shortages and resultant pricing issues, which placed pressure on gross profit margins throughout the year .

As a result of  these headwinds, the report notes a rise in the number of pharmacies coming to market throughout 2019, delivering a 46.4% increase in Christie & Co’s instructions over the year, which we predict will continue in 2020.

It also considers how the new Five-Year Deal, introduced by the Department of Health and Social Care (DHSC) in July, may bring some certainty to the sector. The deal fixed the global funding sum at £2.592 billion per annum for each of the next five years and in doing so, signposted changes in the allocation of funding to more service-led activities. However, the full impact is difficult to measure and will be dependent on the roll out of new services over the course of the deal.
 
The funding climate north of the border was far more settled, as highlighted in the report. As a result, in Scotland, Christie & Co 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.
 
Looking to the year ahead, the report also outlines Christie & Co’s market predictions which are:

• 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

 
Tony Evans, Head of Pharmacy at Christie & Co comments, “Whilst 2019 was a challenging year for pharmacy contractors, appetite remained strong from opportunistic purchasers who were able to take advantage of the increased volume of pharmacies that came to market. Many of the larger multiples and corporate operators churned non-core pharmacies within their estates and chose to concentrate/invest in their existing estates rather than new acquisitions. This is a trend that we anticipate will continue throughout 2020.”