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High street pharmacies are closing the gap with those located within a GP surgery on a key measure used in premises valuations, a surveyor has told P3pharmacy.

P3pharmacy caught up with Thanos Mesochoritis, an associate director at Copping Joyce, following a LinkedIn post in which he shared his insights on changes in the pharmacy transaction market, which he said are driven in part by electronic prescriptions helping the wider sector gain market share from GP-based community pharmacy businesses. 

Mr Mesochoritis said that while pharmacies that share a premises with a GP surgery still command higher multiples of their EBITDA – earnings before interest, taxes, depreciation and amortisation – he has seen this gap closing in the South East England region he works across.

He said that after recently valuing pharmacies in the region he had “realised the multiples had moved from where they were around three years ago”.

He said that in the past he had applied multiples of “at least 6.5 and up to around 7.5” on surgery-based businesses, adding that this has “gradually” changed such that he has recently applied lower multiples of between 5.5 and 6.5 to pharmacies in this category. 

Asked how this might compare to a high street pharmacy not connected to a health centre, Mr Mesochoritis replied: “Previously it could be twice the difference – now it might be around one and a half times”

High street pharmacies typically command EBIDTA multiples between 5.5 and 5.75, he said, with higher multiples of 6 or more applied in “rare” cases to “phenomenal” pharmacies. 

“That means good profits, strong NHS prescriptions, good OTC sales and probably a couple of consultation rooms,” he explained. 

Pharmacies collocated with a surgery are likely to always have a valuation advantage, he said: “They will still attract the highest multiples.

“It’s like I say to graduate surveyors, if you sell candles outside the church you will always have business.”

And the higher rents paid by surgery-based pharmacies are also factored into valuations, he added: “They pay for that premium.”

But the gap in EBIDTA multiples commanded by the two types of premises is closing, he said, suggesting that factors like electronic prescriptions are helping high street businesses to gain market share that would have previously stayed within pharmacies receiving scripts from the surgery next door. 

Longer opening hours for high street businesses and the increasing availability of clinical services like Pharmacy First is also helping to close the gap between different types of pharmacy premises, he told P3pharmacy.

And investors may view surgery-based pharmacies “as having higher regulatory and operational risks due to their dependence on GP practices,” he said in his LinkedIn post, adding that declining drugs margins are “particularly impactful” on health centre pharmacy valuations.