Can independent community pharmacists drive growth through corporate disposal?

With major corporations like Lloyds Pharmacy divesting a significant number of outlets,
entrepreneurial pharmacy owners might find themselves with a golden opportunity. Can these
savvy independents leverage such opportunities to reshape their future through acquisitions?
And in the current challenging business environment, how can they secure the necessary
financing to drive this growth?

The UK pharmacy sector is at a crucial juncture. Years of diminished NHS funding, rising
inflation, and a sluggish economy have left pharmacies grappling with substantial cost
increases. However, independent pharmacy businesses of all sizes now have a unique chance
to acquire undervalued assets, provided they can secure the financing needed to act swiftly and
confidently.

Turning Crisis into Opportunity
The current five-year pharmacy funding settlement, agreed in 2019, now seems outdated. In
2019, the deal was seen as tough but manageable but since then, inflation has surged,
(escalating from 2.1% in July 2019 to a peak of 11.1% in October 2023 (Office for National Statistics) (ONS) and community pharmacies have faced a global pandemic, skyrocketing
energy bills and increased labour costs. Then factor in a rising national living wage, general
wage inflation, a Brexit-induced shortage of locum pharmacists, and the challenges compound.
Oh, and did we mention how the cost-of-living crisis has dampened consumer spending?
So the settlement has become increasingly inadequate. The agreed-upon flat funding rate for
five years, with no provision for inflation adjustments, has forced the pharmacy sector to absorb
the difference, causing financial strain on pharmacies.

The Potential of Pharmacy First
A promising development for the sector emerged in May, with the government announcement
of a £645 million investment in pharmacies to fund a common conditions scheme in England.
This is the much-anticipated national Pharmacy First service.

Pharmacists represent a highly skilled, comparatively untapped pool of healthcare
professionals, who can help fill the gap left by an NHS struggling to deliver frontline services.
There is a significant opportunity for entrepreneurial pharmacies boost their revenue, and
secure long-term growth by offering new services. This expansion is essential to adapt to the
evolving market demands and secure future profitability.

Independents are in the best position to capitalize on these opportunities due to their intimate
knowledge of local markets and customer needs. Focusing solely on prescription services will
likely lead to diminishing profit margins in the coming years. The NHS is moving towards more
centralised dispensing with automation reducing the need for a large number of independent
pharmacies. To thrive, the sector must embrace new services and revenue streams, while
industry bodies must ensure these services do not devalue the critical dispensing function.

Corporate Divestments: A Unique Opportunity
Last year, Lloyds Pharmacy announced the sale of many of its 1,300 UK pharmacies following a
strategic review of its estate. Then other corporations that spent years acquiring much of the
available pharmacy stock followed suit.

As margins tighten, these businesses become less viable for corporate operators, while independents are better equipped to manage them.

So these corporate divestments represent a rare opportunity for independent pharmacies. However, this opportunity is time-limited and highly competitive, requiring businesses to move
quickly and confidently. Acquiring these assets could significantly boost the growth of
entrepreneurial independents, familiar with their local markets.

Considerations for Buyers
When making acquisitions, it is crucial to assess the true value of a potential acquisition. A
pharmacy is often valued based on its turnover, typically around 100 pence in the pound in
England. But a business should be valued by its likely profitability, considering factors such as
the revenue mix (dispensing, over-the-counter sales, and services) and inherited costs like rent
and staff salaries. High turnover does not necessarily indicate high profitability if overheads are
also high.

Many Lloyds pharmacy branches showed a decline in prescription volume in recent years due to
tough market conditions. If an individual pharmacy carries the overheads of a larger business,
this will further suppress its value. While potential buyers must also consider the investment
required in the business and premises post-acquisition, it is the Independents, with their deep
understanding of local markets, that can better realize potential and rebuild the business.

Why RxBridge is a Natural Choice for Acquisition Funding
RxBridge is uniquely positioned to help fund growth in the pharmacy sector. We assist many
clients in leveraging their existing trade to fund both their next acquisition and the working
capital requirements that follow. With extensive experience in the sector, RxBridge offers a
finance facility specifically designed for pharmacies.

Acquisitions involving corporate divestments are often difficult for banks to fund due to the
deteriorating nature of some assets, limited trading data, and short leases. This reluctance from
traditional lenders opens the door for specialized funders like RxBridge, who have a proven track
record of supporting entrepreneurial pharmacy business owners.

As market-leading pharmacy specialists, providing revenue finance to almost 700 pharmacy businesses in the UK, RxBridge is well-equipped to help independents seize these opportunities and drive their growth forward.

We can provide up to four times the value of your monthly income, making a fast, accurate risk
assessment so you receive a lending decision within days, not weeks or months as with
traditional lenders. With time-limited, competitive acquisition opportunities, businesses cannot
afford a lengthy application process and often times, cash talks!

Do discuss you acquisition requirements please click here.