Tony Evans, head of pharmacy at Christie & Co, reviews the pharmacy business market during 2016, and looks ahead to 2017

On the back of a strong 2015, the underlying performance for 2016 was almost identical, underpinned by activity across both individual transactions as well as corporate and group projects, with the market remaining positive throughout the year.

The major theme of 2016 was the funding cuts proposed in December 2015. This became even more focused following the Department of Health’s October 2016 announcement that the cuts would take effect from December 2016, with the
global funding settlement being reduced by £113m for the current financial year to £2.687bn, with a further reduction of £95m in 2017/2018 to £2.592bn.

While the scale of the cut for the current financial year was £57m less than first anticipated, the manner in which the cuts are being implemented has caused real concern. The subsequent announcement by the PSNC, on the day the cuts came into effect, that it was seeking a judicial review on the matter, seems to have been met with mixed feelings across the sector. Some contractors saw the application as welcome news, while others felt that, if successful, the review would simply delay the inevitable and even deeper cuts would be made further down the line.

Despite all this, the market has continued to perform at similar levels to those that were experienced before the October announcement.

A busy transactional year

In our annual market review, ‘Business Outlook 2017’, we note that our average price indices moved forward by 12 per cent over 2016, on the back of a busy transactional year, with over 70 sales completed. This compares to a figure of 10 per cent for the previous year. Buyer sentiment continued with confidence, and the average price for completed sales increased in 2016 to £968,000, with seven offers received per sale.

Ready access to funding also helped to buoy the market, with our sister company Christie Finance completing on facilities with more than 20 lenders across the UK. Appetite has remained strong, with many of these lenders agreeing deals based on the individual merits of the opportunity rather than taking a ‘one size fits all’ approach to the market.

Average price indices moved forward by 12 per cent over 2016

Applicant numbers rose by over 11 per cent on the previous year, to an all- time high of over 5,000 across the UK. A significant proportion of these were first- time buyers or new entrants to the market, and by the end of the year these accounted for roughly 81 per cent of our applicants.

The spike in first-time buyer registrations witnessed earlier in the year is again anticipated for the first quarter of 2017. This is expected to be partly due to locums and pharmacy managers looking towards ownership to offset employment uncertainty and pressures as contractors look to drive efficiencies in their businesses now the cuts are upon us.

Looking forward

In looking forward, it is hoped that the sector will see resolution to other issues that have affected the market – none more so than the reported delays of Capita/NHS England regarding transfer of ownership applications and registration processes. These delays had an inevitable consequence on deal times, some being delayed by up to three or four months while applications were processed – this is well beyond NHS England’s own guide times.

As we go into 2017 we anticipate a further flurry of sales as the funding cuts take effect. However, with a burgeoning demand and the still relatively few pharmacies available for sale in comparison, we are confident that appetite will continue well into 2017.