The number of UK pharmacy M&A transactions has jumped 26 per cent to 408 in the last year, up from 325 the year before, says UHY Hacker Young, the national accountancy group.
Pharmacies were one of few sectors to benefit from a surge in customer demand during the pandemic. As one of the few designated “essential retailers”, they were also allowed to remain open throughout lockdown.
Sales of PPE, along with Covid testing has opened up a whole new business lines for pharmacies. This has not only increased their appetite amongst pharmacies to acquire smaller operators but also made pharmacies a more attractive target for buyers from outside of the sector.
UHY Hacker Young says both regional and national pharmacy groups are making acquisitions, including first time buyers that have not previously made acquisitions.
Private equity buyers have also been showing increased interest in the sector. It was recently reported that the owner of Lloyds Pharmacy, McKesson Corporation, has been in talks with three prospective bidders for the sale of its UK business, including Aurelius Group, Epiris and HIG Europe.
In 2019, private equity firm, Bregal Freshstream, provided funds to pharmacy group Juno Health, allowing it to acquire the entire Avicenna estate which consists of 21 pharmacies.
John Ierston, Partner at UHY Hacker Young says unlike much of the retail sector, the majority of pharmacies are still focusing expansion on buying additional sites, rather than investing in ecommerce.
There are many benefits associated with merging, for example pharmacies can deliver economies of scale, particularly in back office functions. It also allows them to take on greater expertise, expand their workforce and increase their services provision, allowing them to serve a wider customer base.
John Ierston says: “Pharmacies are one of the few industries to have benefited from the pandemic – this has been reflected in the sector’s healthy M&A activity.”
“Mergers and acquisitions remain the quickest way for pharmacies to expand their portfolio of both high street and health-centre locations.”
UHY Hacker Young says when pharmacy owners consider merging, it’s important they plan in advance of a sale. By doing so, it is often possible to prevent any immediate tax liability from arising. Advance planning will also be key to make use of available tax reliefs to avoid overpaying. An example is Entrepreneurs’ Relief which reduces the amount of Capital Gains Tax payable from 20 per cent to 10 per cent when selling a business.
