To counter the rapid rise in the Consumer Prices Index, the Bank of England increased interest rates five times in 2023, reaching 5.25% by August
The Bank of England's Monetary Policy Committee has announced a reduction in the base rate of interest from 5.25% to 5%.
The change is expected to ease some of the financial strains facing the sector, potentially leading to a more favourable market environment for pharmacy transactions.
The Bank of England's decision aligns with predictions made in the 2024 UK Pharmacy Market report by Hutchings Consultants, which anticipated a sharp decline in the base rate due to mounting pressure on the BOE to lower rates in support of economic growth.
According to the report, this rate cut will alleviate some of the financial pressure on existing operators, help pharmacy buyers with affordability, and support goodwill prices.
“The anticipated reduction to interest rates in coming months will bring welcome relief to a sector which due to its unique funding arrangements with the Government, has been left particularly exposed to the high levels of inflation and rising business costs,” it said.
Hutchings Consultants revealed that approximately 98% of the sales they facilitated last year involved buyers securing bank loans.
To counter the rapid rise in the Consumer Prices Index, the BOE increased interest rates five times in 2023, reaching 5.25% by August. This led to higher loan repayment costs and caused many buyers to adopt a more cautious approach when making offers.
As a consequence of the change in the BOE base rate, HM Revenue & Customs (HMRC) interest rates for late payment and repayment will be revised.
The revised rates will come into effect on 12 August 2024 for quarterly instalment payments and 20 August 2024 for non-quarterly instalment payments.
HMRC has indicated that updated information on these interest rates will be provided soon.
Currently, HMRC's late payment interest rate is set at the base rate plus 2.5%, and repayment interest is calculated at the base rate minus 1%, with a minimum floor of 0.5%.
First-time buyers dominated independent sales last year
The UK pharmacy market experienced a surge in acquisitions amid corporate disposals last year, as reported by Hutchings Consultants in their 2024 UK Market Update.
Existing pharmacy owners with single branches completed most corporate acquisitions overall in 2023, completing 34.8 per cent of transactions.
First-time buyers were close behind at 34.4 per cent, with group owners at 31.8 per cent.
In contrast, first-time buyers dominated independent sales, securing 42.8 per cent, followed by group owners at 32 per cent and existing single-branch owners at 25.5 per cent.
The report, which analysed numerous sales completed by Hutchings Consultants across England, Scotland, and Wales, highlighted the impact of large-scale corporate disposals.
The divestment of over 1,054 Lloyds Pharmacies by Hallo Healthcare Group in 2023 triggered a surge in enquiries and registrations from both new and existing buyers.
This led to a 200 per cent increase in new buyer registrations in Q1 2023, which later stabilized through the year, resulting in a 91 per cent increase compared to the previous year.
First-time buyers accounted for 77 per cent of the new registrations, with existing owners in second place at 15 per cent. The remainder of the registrations were shared between investors, previous owners, and group owners.
“Many experienced owners were keen to add to existing portfolios, while first-time buyers took advantage of the unparalleled market conditions to acquire their first pharmacy business.,” the report said.
Other multiples such as Boots and Well also opted to divest some branches, although on a significantly smaller scale than Lloyds. Boots additionally announced the closure of 300 branches around the UK as part of a performance review.
2024 Market Predictions
The launch of the Pharmacy First Scheme in England, coupled with a £645 million funding boost over two years, is expected to positively impact the sector. Wales also announced a 5 per cent funding increase for 2023/24 worth £6.3 million.
According to Hutchings Consultants, these developments are already bringing a renewed degree of confidence from buyers.
The pharmacy sales specialist stated that the most notable opportunity for the sector to capitalise upon in 2024 will be the Community Pharmacy Contractual Framework negotiations, offering a chance to secure a vital uplift to the contract’s fixed global sum.
Independent group operators and corporate owners were anticipated to continue reassessing their existing portfolios, making strategic disposals of varying sizes, resulting in high transaction volumes.
Overall, the report predicted that pharmacy goodwill prices will remain consistent throughout 2024 unless there is a further decrease in the supply of pharmacies on the market or a substantial increase in community pharmacy funding is achieved.
