Weaker financial performance of the pharmacy sector is driving M&A deals  – London Business News | Londonlovesbusiness.com

1,212 UK pharmacies were acquired in the 12 months (year-end June 30), up 50% from 809 in 2023, shows figures obtained by national accountancy group UHY Hacker Young.

As there are just 13,280 pharmacies in the UK, 9% of all UK pharmacies were acquired as part of an M&A deal in the last 12 months.

The transactions would have included at least part of the sale by Lloyds Pharmacies of all its 1,054 community pharmacies in the last twelve months in a series of sales of regional groups of pharmacies.

John Ierston, Partner at UHY Hacker Young, explains that the high number of M&A deals in the sector has partly been driven by the financial pressures within the sector. This includes the NHS contract for pharmacies becoming less favourable to pharmacies and the cost-of-living crisis driving up costs.

UHY Hacker Young benchmarking research shows there’s been a 10% decrease in Gross Profits per pharmacy, now down to £382,468 per year from £419,598. Multiplied across the UK’s 13,280 pharmacies, the retail pharmacy industry has taken a hit of approximately £500mn to their profits in the last year.

John Ierston of UHY in Chester says that the pace of M&A in the industry is likely to continue as financial pressures continue. Whilst some business owners are looking to exit the sector others are looking to improve their profitability by acquiring more sites to create greater economies of scale. Merging with other pharmacies allows them to strip out duplicated back-office functions and improves their negotiating powers when making purchases.

Says John Ierston: “It has been an increasingly tough year for retail pharmacies and their patients as profits fall and sites are forced to close. It looks likely that the consolidation, that the sector has seen over recent years, will continue.”

“This rise in M&A activity shows that being an independent pharmacy is increasingly difficult. Lower gross margins under the NHS contract and rising wage costs due to the cost-of-living crisis, changes in Minimum Wages and National Insurance rates are squeezing margins.”