What’s The Value Of Your Independent Pharmacy (Part I)?

by David E. Coit, Jr., DBA, CVA, CVGA, CMAA, and Alan J. Hymowitz

Volume 5 Issue 19, September 11, 2018

Today, there are over 22,000 independent pharmacies out of a total of over 61,000 pharmacies nationwide. In addition, independent pharmacies drive over $73 billion of industry revenue with all signs pointing to continued growth. Customer demand is driven by our aging population, new forms of insurance reimbursement, increased awareness of health issues, advances in medical treatments, and longer lifespans. In the latter case, more and more people are seeking the very products and services that independent pharmacies provide.

Current challenges for independent pharmacies include increasing competition of online pharmacies such as Amazon’s PillPack acquisition, shrinking reimbursement in some markets, Pharmacy Benefit Managers (PBMs) offering companies lower drug prices, and the expense of increasing regulatory/administrative burdens.

At the same time, independent pharmacy revenue is expected to grow at least 5% annually over the next four to five years. And, there remains strong demand by buyers of independent pharmacies, especially by large chain pharmacies and private equity groups. Buyers see the future value which creates an opportunity for the owners of independent pharmacies that are looking to sell.

What does this mean for independent pharmacy valuations? Valuations are currently very attractive to sellers as one can see below:

* The actual market value of your specific independent pharmacy may differ from the above multiples based on other factors, as discussed in the next issue of SalientValue, “What’s The Value Of Your Independent Pharmacy (Part 2)?”.

The best way to determine the market value of your unique independent pharmacy is to engage a health care valuation specialist, preferably a valuator with M+A expertise. There are many variations in the valuation ranges noted above and a knowledgeable valuation professional can help you determine what offers your company might receive in today’s strong market.

Owners of independent pharmacies who have been sitting on the sidelines waiting for the right time to sell may want to wait for further market developments and they should also consider the option of selling before market conditions unfavorably impact valuations.