Private equity looks to pharmacy market for solid returns through consolidation

The steady income streams and low risk profiles of pharmacy businesses are proving increasingly attractive for private equity investors, new figures suggest.

The number of pharmacy businesses which changed hands during the last year has doubled to 392, law firm Hugh James finds.

Since the General Pharmaceutical Council began recording pharmacy registrations, 860 have chained hands – a figure Hugh James puts down to the improved profits which can be derived from consolidation.

Greg Williams, partner and head of healthcare at Hugh James, comments, ‘Investors are increasingly seeing pharmacy businesses as an appealing investment prospect – and for good reason.

‘Not only is there a steady income stream from NHS prescriptions and a significant captive customer base from people coming into collect them, but pharmacies in recent years have also got very good at value-added services.’

The London and Cardiff-based law firm highlights services such as STD screening, emergency contraception and needle exchange as examples of the value-added services.

More on chemist transactions:

The rise in acquisitions can be dated back to the acquisition of Alliance Boots by KKR in 2007, the firm says. The investment has reportedly already made back its original sum and will go on to net a return of 2.7x.

Despite the move to allow supermarkets to operate pharmacy licences, Williams says that this did not produce the predicted end of the high street chemist.

‘Now as more investors get in on the act, what we are seeing instead is a move towards greater consolidation with small chains being created with greater economies of scale,’ he adds.

‘As pharmacy businesses demonstrate that they have strong yet low-risk business models based on reliable revenue streams, it’s no wonder buyers are so keen to snap them up and maximise their growth potential.’

Hunter Ruthven

Hunter Ruthven

Hunter was the Editor for from 2012 to 2014, before moving on to Caspian Media Ltd to be Editor of Real Business.

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