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Pharmacy business valuations

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Pharmacies

Changes to the regulatory, legislative, contractual and funding landscape faced by health professionals has not dampened the demand for pharmacy businesses.

The pharmacy market in the UK is split between large and small units with the former being sought after by regional groups as well as corporate operators who will be looking for a turnover in the order of £1m so that they are capable of supporting the cost of a full time pharmacist and still provide a decent return with external management.

Demand for pharmacies has tended to be driven by turnover, particularly those with a strong NHS prescription element, and the presence of accommodation above is less important than it is for retail shops.

As the Government continue to use pharmacies to promote good health and relieve pressures on GP’s there lies an opportunity for pharmacists that may be looking to invest in their premises with the addition of consulting rooms. Just as Governmental change can offer opportunities to the sector it can also present threats and pharmacies could be vulnerable to changes in NHS and Governmental policy and given the strength of the NHS’ buying power there is little pharmacies are able to do to take control.

Many agents will value a pharmacy based on a percentage of turnover and use that as their basis for comparison, putting less emphasis on the underlying profitability of the business which can be a flawed approach, particularly if the premises have high occupational costs. Primarily we will adopt a profits methodology for comparison and valuation purposes, with the multiplier we use reflecting the perceived risk to the profitability, apportionment of prescription sales as well as the presentation, position, desirability and scope of the business whilst also taking consideration of the turnover related comparisons available.

Market values for standard leasehold pharmacies are based on multiples of profit. For larger units the multipliers tend to be higher in order to assess performance and value on a fully managed basis.

Integrated medical centre pharmacies are generally considered to be of more value as there is a high likelihood of them handling the majority of scripts issued by the on site GP’s than those that are physically separate and, as a result, such pharmacies are in high demand.

Evidence of pharmacy sales is often difficult to source due to many operations being under corporate ownership and changing hands via share transactions.

Our ageing population with increasingly complex medical needs is a key driver of the present growth in the pharmacy market. Values are stable and the level of transactions is above that of the broader retail sector which looks set to continue as the salaries of pharmacists decrease and the access to funding improves. Operators are well advised to keep abreast of market developments such as the growth of online services and distance selling contracts.

As valuers experienced in the pharmacy sector we are focused on obtaining and analysing evidence of comparable transactions in the market. Accurate extrapolation of income is another important part of our work with pharmacies, particularly where there is a wholesale element or where there are risks to consider such as a reliance on delivery or care home income.

Growth in the dental sector has been further supported by the availability of funding for leasehold based practices due to strong serviceability and that the purchasers are often an employed pharmacist whose ability to purchase has relied upon the vendor retaining the freehold interest. The trade related leasehold business could be used as security against a loan however the lease will likely be subject to normal forfeiture clauses such as non payment of rent and breach of covenant which if invoked could affect the lenders security position.

It would be important to establish whether the lease is protected by the security of tenure provisions in The Landlord and Tenant Act 1954 that ensures a new lease can be obtained upon the expiry of the existing lease. If not, the value of the leasehold interest could be negatively affected as you approach the lease expiration date.

Eddisons valuers have an excellent understanding of business tenancies and are able to determine the appropriate market rent for pharmacy (A1) premises. We discuss complex leasehold arrangements with solicitors to ensure the bank’s security position is not reduced and also use our experience and knowledge of how the physical location of a pharmacy within a medical/health centre can influence market rent.

Our pharmacy team is located throughout the UK and would be happy to discuss your valuation requirements and offer advice on costs and timescales, simply complete the form above or below and a member of our specialist team will contact you promptly.

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