Takeovers of pharmacies are up 95 per cent in the last year alone* as the traditionally fragmented sector continues its consolidation says Hugh James, the Top 100 law firm.
Hugh James says that 1294 pharmacies were taken over in 2015/16 – compared to the 664 acquired in 2014/15. The number of pharmacy acquisitions has risen 230 per cent since 2011/12 – when there were 392.
Hugh James explains that pharmacy groups are acquiring smaller competitors or merging to help match the economies of scale that the sector’s giant, Walgreens Boots Alliance, has achieved. Even mergers between a small number of pharmacies can see a substantial increase in margins as back office functions are consolidated and greater bargaining power is achieved when dealing with suppliers.
The increased marketing budgets of the newly merged groups also allows the pharmacies to start investing more heavily in their brands – in a sector where branding and advertising has traditionally been limited to the very biggest chains.
Hugh James says that larger pharmacy groups (which will normally have more stable earnings) also find it easier to borrow in order to fund store refurbishment. Many operators in the sector are now looking to bridge the gap that has grown between pharmacies and the rest of the high street in terms of store design and fit out.
Hugh James says that greater scale amongst pharmacy groups also makes it more economic for them to offer additional services that generate revenues from the NHS such as support to stop smoking and STD screening.
Greg Williams, a Partner at Hugh James, says: “Pharmacy M&A activity has continued at a very healthy rate – despite the various challenges faced by the sector.”
“As the Government looks to make savings on its funding to pharmacies, those looking to receive extra financing from the NHS are having to offer additional services to secure this. That increased operational risk is best spread across a bigger group of outlets.”
“The competition watchdog is keeping a close eye on how the larger scale acquisitions affect consumers and consumer choice.”
“It may be that further M&A activity in the coming years arises from the CMA ordering sales of pharmacies by large groups in order to level out the playing field.”