Financial trends driving M&A deals in the pharmacy sector
The pharmacy sector in the UK has seen a surge in mergers and acquisitions, with 1,212 pharmacies acquired in the past 12 months. This represents a 50% increase from the previous year, as reported by UHY Hacker Young. With only 13,280 pharmacies in the UK, this means that 9% of all pharmacies have been part of an M&A deal recently.
One significant deal that contributed to this trend was the sale of Lloyds Pharmacies’ 1,054 community pharmacies in multiple transactions over the past year. According to John Ierston, a Partner at UHY Hacker Young, the financial challenges in the sector are a major driving force behind these acquisitions. Factors such as the NHS contract becoming less favorable and the rising costs due to the current cost-of-living crisis have put pressure on pharmacy profits.
Research conducted by UHY Hacker Young shows a 10% decrease in Gross Profits per pharmacy, dropping from £419,598 to £382,468 per year. This decline has collectively impacted the industry, resulting in approximately £500 million in reduced profits for UK pharmacies in the last year.
John Ierston predicts that the pace of M&A activity in the pharmacy industry will likely continue as financial pressures persist. While some pharmacy owners are opting to exit the sector, others are looking to enhance their profitability by acquiring additional sites to benefit from economies of scale. By merging with other pharmacies, businesses can streamline operations, reduce duplicated functions, and strengthen their bargaining power in purchasing.
In summary, the rise in M&A activity reflects the challenging environment for independent pharmacies. Lower gross margins under the NHS contract, coupled with escalating wage costs and changes in regulations, have created a tough landscape for pharmacy businesses. Despite the difficulties faced, the sector is expected to see ongoing consolidation in the coming years.
