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Mid-year review of the UK pharmacy market

Banks still have appetite to lend for pharmacy purchases, says Christie & Co

Despite interest rate rises and wider economic pressures, many banks have maintained their appetite for lending to prospective pharmacy purchasers, writes Christie & Co’s head of pharmacy, Tony Evans

So far this year, we have witnessed robust activity in the UK pharmacy market, with all key metrics at or above where they were this time last year.

Despite continued operational pressures facing contractors, along with the ongoing impact of the economic inflationary cycle, buyer appetite from both existing operators and first-time buyers remains as strong as ever.

This is evident in the number of our agreed deals in the first half of 2023, which increased by almost 45 per cent compared with the same period last year, along with 49 completed sales.

Key market trends

In terms of front-end activity, even with increased operational pressures, the number of independent operators looking to exit the market or consolidate their estates remains much on par with last year.

The first half of the year has, however, involved plenty of corporate activity, with all of the key operators looking to divest their estates of non-performing or marginal stores. As previously reported in P3pharmacy, corporate activity has continued to be dominated by the sales of Lloyds branches, either through individual sales or subgroups to other regional and national multiples seeking to take advantage of the discounted prices at which the pharmacies have been offered for sale. 

While independent activity and values have remained strong, such a high volume of sales has resulted in delays across the regulatory approval process, as purchasers seek fitness to practice consent and/or change of ownership approval.

The consequence of this is that deal times have lengthened, particularly for sales transacted by way of asset sales. However, with an increasing number of these sales now completing, we anticipate that this hiatus will ease in the second half of the year, enabling more sales to complete in a timely manner. 

Locum rates continue to challenge contractors who, in trying to offer fair rewards to locums, must balance this with the viable trading of their businesses. Although some are reporting a gradual easing of locum rates over those witnessed in the latter half of 2022, they remain significantly higher than pre-pandemic levels, particularly in more remote areas. 

The impact of funding

The announcement of the additional £645 million in funding over the next two years to support the roll out of a Pharmacy First-style minor ailments scheme has been cautiously welcomed by many contractors.

However, nervousness lies around the investment that pharmacies may have to consider in additional staffing or otherwise in delivering this new service and how this may impact the real returns such remuneration may deliver. Meanwhile, funding pressures continue to impact the market. Therefore, it is inevitable that the sector will see further closures – more so in corporate estates than in the independent sector. 

In recent years, the pharmacy sector has repeatedly risen to the challenges of funding cuts, a flat funding deal that failed to consider potential inflationary pressures, and then a global pandemic. During these times, contractors have had to find economies in their business models. However, there are only so many efficiencies a business can introduce before they start to impact trading viability, etc.

The unintended consequences of such pressures and the need to constantly find operational efficiencies manifest themselves in subdued investment, whether it be in staffing, technology, additional patient services, or elsewhere.

It is hoped that not only the outcome of Community Pharmacy England’s negotiations on the delivery of the £645m of additional funding but also the negotiation of the sector’s funding beyond the current five- year deal will not only remunerate contractors fairly and reduce further closures in the future but also encourage further investment in the delivery of patient services.

Lending in the sector

With the wider economic pressures and the recent flurry of interest rate rises, it is reassuring that many of the banks that are traditionally active in the pharmacy sector continue to have an appetite to lend across the whole market, from first-time buyers to experienced and seasoned operators. However, prudence is key, with many banks seeking increased due diligence and business plans to support decisions to lend.

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