Jonathan Board says young entrepreneurial pharmacists with management experience and some decent savings for a deposit are fuelling the activity of the community pharmacy market…

Over the course of 2020 and the first quarter of 2021, we have seen a strong appetite for pharmacies across the UK, from both existing pharmacy owners and first-time buyers alike. Despite the challenges the pandemic and subsequent various lockdown and tier restriction measures presented, both the population as a whole and all business sectors have made significant adjustments to working practices to contend with the constraints on mobility and social distancing.

Some sectors have fared better than others, with pharmacy having undoubtedly been one
of these. Whilst the sector was one of only a few in a ‘retail’ environment that has remained open over the course of the pandemic, this has not been without its challenges.

However, buyers have taken comfort and encouragement from the widely publicised
and renewed appreciation of community pharmacy. This should be welcome news for those pharmacy owners who are either considering or seeking a sale in 2021.

Not only as a result of the lockdown measures but also the pressure contractors have
been under to meet the increase in demand, this has resulted in fewer pharmacies coming to market with all agents witnessing a squeeze on the number of pharmacies available for sale.

Therefore, those contractors who do look to sell their pharmacies will be experiencing
a market driven by relatively low numbers of pharmacies for sale at any one time, whilst
banks remain keen to lend to the sector along with a notable increase in registered buyers.

On a national level, our recent sentiment survey presented encouraging views with 50
per cent of respondents feeling prices will increase in 2021 and 12.5 per cent believing
prices will remain relatively neutral. With regards to business recovery, 51.5 per cent
of respondents were positive in their outlook for 2021 and beyond and considering the
unprecedented times we have faced over the last year, this is rather encouraging for buyers
and sellers alike.

Since the start of the pandemic, prices have seen a small increase on that at the end of 2019, with a high proportion of our independent pharmacy sales now achieving between 90
pence in the pound and a pound in the pound of turnover, equating to an average multiplier
of adjusted profit/EBITDA of 7.5 – 8.5 times (fully managed).

Bank lending remains available, albeit some lenders have tightened their policies slightly due to the pandemic. However, there are a number of lenders still offering high loan to values that were available prior to the pandemic. For first-time buyers, we are witnessing lenders offering up to 80 per cent loan to value which really gives them an opportunity of securing a good business to which they can add value.

It is these young entrepreneurial pharmacists, who have gathered management experience and who have saved for a deposit for a number of years, who are fuelling the activity at the lower and middle levels of the market.

They are often able to move quickly when they identify a good opportunity and are enthusiastic and confident in their future of pharmacy ownership. In fact, many first time
buyers who have successfully acquired a pharmacy are soon looking for a second pharmacy to purchase.

In addition to first-time buyers and new entrants to the market, we are also seeing the
returning appetite of existing operators, with many independent and multiple contractors
seeking opportunities to add to their estates.

There has also been a brisk start to corporate activity over the first quarter of 2021,
with the likes of Well acquiring Norfolkbased Pharma-Z limited, swiftly followed by Avicenna plc acquiring Dudley Taylor Pharmacies Limited and AJ & M Sheppard Limited in quick succession.

Last month’s announcement of PCT Healthcare Limited’s merger with CG Murray and Son Ltd is further evidence of activity at upper end of the market, too.

We have also seen an increase in the demand for flexible and short-term funding
in the pharmacy sector. Unsecured loans and equipment or stock finance have proven
popular throughout the sector. Their flexibility provides both buyers and operators the
opportunity to cover unexpected bills, fund store improvements or even assist with the
acquisition or relocation of a pharmacy, all at competitive rates. This has enabled some firsttime buyers who may have been short of the necessary funds to bridge the gap and complete a purchase.

Our 2020 activity was the best year since our inception over a decade ago, where we
received 435 offers on the pharmacies we were marketing and agreed 169 new sales with a
combined value in excess of £100 million. We also exchanged or completed on over 100

2021 has already seen strong sales activity, with our pharmacy team exchanging or
completing on 40 pharmacies during the first quarter. Add to these, a further 38 sales agreed and over 100 offers generated. As lockdown restrictions ease, we expect to see activity increase further.

Where corporate operators had initiated disposal programmes over the last 12 months, many pharmacies have and continue to complete to first-time buyers and independent
contractors who have taken advantage of the opportunities they offer.

While the outlook for the market on the back of this activity looks very positive, the sector still needs to resolve the issue of what will happen to the Advanced Payments received over the first four months of the pandemic.

The entire market is keen to understand if and when these monies will be repaid and on what basis. Some people expect the full amount to be repayable, whilst others feel
that it is likely some if not all of it will be repurposed into additional services or passed
on to the sector in recognition of their tireless work so far.

Overall, our opinion, remains positive and, in many respects, as the lockdown measures
ease, we expect it will be business as usual for the remainder of the year, with continued
demand for pharmacies from a wide range of buyers and a limited supply of available
opportunities at any one time ensuring that strong prices are achieved for good businesses.

Good opportunities will exist on nonperforming pharmacies and corporate disposals for buyers to improve the service offering and item numbers in a particular location.

Jonathan Board is a director at Christie & Co.

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