Articles2019-06-03T17:09:32+00:00

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From Team M+A of American HealthCare Capital

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Frequently Asked Questions

Is this a good time to sell my Specialty Pharmacy (“SP”)?2019-05-13T22:11:40+00:00

We instruct owners and operators that they have to make this decision. Here is what we know with the independent SP’s we have represented through a sale:

  • The competitive landscape is very treacherous. The largest pharmacies own the majority of the market share and they don’t want smaller independents getting in their way. Moreover, the large hospital networks, GPOs, and other health systems/groups are establishing specialty pharmacies. They are keeping pharmacy patients who would have traditionally gone to independents.
  • Payors, who are affiliates of the large competitors are reducing access and/or reimbursements. This is squeezing margins. It also creates a stress on the business with audit notices and claims that certain patients are in breach of the payor contracts. In most cases, the independent pharmacy thinks they are in compliance then they are hit with some bogus claim which threatens their contract altogether.
  • And is if that were not enough, PBMs and DIR fees associated with Part D plans are overburdening the administration/billing expenses and reducing profits even further. This is what we hear from operators all the time: “I just want to be a pharmacist and business owner, but the PBMs are making it impossible to make money. I can’t ever focus on what I loved about this business in the first place.” If this is you, it may be time to sell.
Are Specialty Pharmacy valuations decreasing?2019-05-13T22:11:50+00:00

Yes. With the continued consolidation, the top 4 specialty pharmacies have over 70% of the revenue market share. This makes it a buyers market. PBMs, most of whom are owned by the aforementioned large specialty pharmacies, continue to put a strain on the cash flow of the independent operators. There is also tremendous uncertainty with reimbursements on drugs. Essentially how are drugs priced at the point of sale. All of this has lead to declining valuations. Large Strategic buyer may spend 20% of revenue, while a Financial Buyer may pay between 5 – 6X. This is down from 25% of revenue and between 6 – 7X just in 2017 (based on internal transactional comp data)

Who will buy my specialty pharmacy?2019-05-13T22:12:05+00:00

Strategic: Of the big 4 (CVS; ESP; Walgreens; OptumRx) we only see CVS putting in competitive bids with independent sellers less than 100MM in revenue. Walgreens is making moves in an effort to keep up with CVS, but they are no where near as effective. We have not worked with the other two, but may surface with the right opportunity.

Financial: Assuming the pharmacy is 1) differentiated (ie has a market niche) with service and/or drug therapy AND 2) it has over 3MM in EBITDA it should be of interest to a number of financial sponsors. We highly recommend that you have an M&A advisor to not only tap into the financial buyer world, but to understand how they run their process.

How can I improve the value of my Specialty Pharmacy?2019-05-13T20:59:38+00:00

We instruct owners and operators that they have to make this decision. Here is what we know with the independent SP’s we have represented through a sale:

  • The competitive landscape is very treacherous. The largest pharmacies own the majority of the market share and they don’t want smaller independents getting in their way. Moreover, the large hospital networks, GPOs, and other health systems/groups are establishing specialty pharmacies. They are keeping pharmacy patients who would have traditionally gone to independents.
  • Payors, who are affiliates of the large competitors are reducing access and/or reimbursements. This is squeezing margins. It also creates a stress on the business with audit notices and claims that certain patients are in breach of the payor contracts. In most cases, the independent pharmacy thinks they are in compliance then they are hit with some bogus claim which threatens their contract altogether.
  • And is if that were not enough, PBMs and DIR fees associated with Part D plans are overburdening the administration/billing expenses and reducing profits even further. This is what we hear from operators all the time: “I just want to be a pharmacist and business owner, but the PBMs are making it impossible to make money. I can’t ever focus on what I loved about this business in the first place.” If this is you, it may be time to sell.
What types of Financial Buyers are there for Specialty Pharmacies?2019-05-23T00:10:47+00:00

Traditional Private Equity. Be ready for the treaded Quality of Earnings and an over engineered acquisition agreement.

Family Office.  Patient capital.  Long holds.  Not much industry expertise.

Independent Sponsor or Fundless Sponsor.  Will get capital to acquire once the deal is secured.  Will probably have a principal who will come in to learn the business as CEO in residence.

Contact us to learn more about current opportunities.

Contact TEAM M+a of American Healthcare Capital