Latest / The Buyout Show with Fexingo: Private Equity, Roll-Ups, and Business Acquisitions / How Private Equity Is Consolidating Independent Pharmacies
Transcript
- Lucas: So there's a quiet roll-up happening in your neighborhood, and it's not in solar panels or dental clinics this time. It's at the corner drugstore. Luna: You mean independent pharmacies? Because I feel like I still see a few of those around — but maybe fewer every year. Lucas: Exactly. Between 2019 and 2024, over a thousand independent pharmacies closed their doors. And in that same window, private equity firms were quietly buying up the ones that survived. We're talking hundreds of acquisitions, often small add-ons folded into bigger platforms. Luna: So the trend we've been tracking in other industries — the dental clinics, the vet practices — it's now hitting the pharmacy counter. Lucas: Right. And the economics are brutal. Independent pharmacies operate on razor-thin margins, often in the low single digits. The real squeeze comes from pharmacy benefit managers — the PBMs — who set reimbursement rates. One bad contract can wipe out a year's profit. Luna: And that's where PE steps in? Because they have the scale to negotiate better rates? Lucas: That's the pitch. A single pharmacy has no leverage against a PBM. But a roll-up with five hundred locations? Suddenly you're a meaningful chunk of a network, and you can push back. That's the theory, anyway. Luna: But does it actually work in practice? Because I've heard some of these deals run into trouble. Lucas: Results are mixed. Take BrightSpring Health Services — they went public in early 2024, and they've been on an acquisition spree, buying up home health and pharmacy assets. Their pharmacy segment has grown revenue, but profitability has been spotty. The integration costs are real. Luna: So the roll-up playbook isn't a guaranteed win. What else is driving the closures? Lucas: It's not just PE. The big chains — CVS, Walgreens — they've been closing locations too. But independents have a different problem: the reimbursement model. PBMs have shifted from a percentage-based markup to a fee for script model, and that fee has been shrinking. Some independents now make less than a dollar per prescription after costs. Luna: That's insane. How do they even stay open? Lucas: A lot of them diversify — they add delivery, they lean into clinical services like immunizations, or they focus on niche populations like long-term care. But those are exactly the capabilities that PE firms find attractive. A pharmacy that's already doing high-margin work is a great platform to build on. Luna: So we're seeing the same pattern we saw in vet clinics — the well-run independents are the ones getting bought. Lucas: Precisely. The owners who've figured out how to survive are the ones who get an offer. And the deal math is interesting: a typical independent pharmacy might do two to three million in revenue, with maybe two hundred fifty thousand in EBITDA. That's a small bolt-on, but when you roll up fifty of them, you have real scale. Luna: And what's the typical valuation multiple for one of these shops? Lucas: It varies, but I've seen deals in the five to seven times EBITDA range for a well-run independent. That's a decent exit for a pharmacist who's been at it for thirty years. But the buyers aren't in it for the long haul — they're looking to bundle and flip to a larger strategic or another PE firm. Luna: So the pharmacist gets a payday, the PE firm gets a platform, and the customer... gets what exactly? Lucas: That's the million-dollar question. The pitch is better service, more clinical offerings, lower drug prices through scale. The critics say it's just a way to extract more rent — they point to 'pharmacy deserts' where consolidation has left low-income neighborhoods without a nearby drugstore. Luna: I've seen those maps. There's a real public health angle here. But let's go back to the numbers — you mentioned BrightSpring. Who else is playing this game? Lucas: There's a firm called Shields Health Solutions, which focuses on hospital-based specialty pharmacies — they've been acquired by Walgreens, actually. And then you have private equity platforms like Guardian Pharmacy, which went public in 2024. They've rolled up over a hundred independent pharmacies across the US. Luna: A hundred? That's not a roll-up, that's a whole chain. Lucas: Right, and it shows how the model has shifted. Ten years ago, these were small regional aggregations. Now they're national platforms with hundreds of locations. And the pace has accelerated in the last three years as reimbursement pressure has made it harder for independents to go it alone. Luna: So if you're an independent pharmacist listening, what's your takeaway? Sell now or hold on? Lucas: It depends on your market and your own appetite for risk. But the window for a good multiple might be closing. As more PE firms pile in, the good properties get picked off, and the remaining ones have less leverage. That said, some owners are choosing to stay independent and compete on service — and they're doing fine. Luna: And that's actually a nice segue to something we've been thinking about. You know, we've talked a lot about the mechanics of these deals, and a lot of you have told us it's helped you make decisions about your own businesses. Lucas: Right. And if that's been the case for you, and you've gotten some value out of what we do here, there's an easy way to keep the show going ad-free. It's buy me a coffee dot com slash fexingo. That's it. No pressure, just a way to support us if you can. Luna: Yeah, and it genuinely helps. We don't run ads, and listener support is what makes that possible. So if you've ever learned something from an episode, consider it. And now back to the pharmacies — one thing I want to dig into is the 'pharmacy desert' claim. Is that actually happening? Lucas: It's real, but it's not uniform. You see it most in rural areas and in urban neighborhoods with higher poverty rates. When an independent closes, it's often the only pharmacy within miles. A pe backed chain might not want to put a store there because the volume doesn't justify it. Luna: So consolidation can actually reduce access, even if the surviving stores are more efficient. Lucas: Exactly. And that's why some state legislatures are starting to push back. A few states have passed laws restricting PBM practices, and there's been talk of antitrust scrutiny on some of these roll-ups. But so far, it's been mostly at the state level, not federal. Luna: And what about the pharmacies themselves — do they change once they're owned by PE? Lucas: Sometimes you see more focus on high-margin services, like compounding or medication therapy management. But you also hear stories of reduced hours, fewer pharmacists on staff, and pressure to meet throughput targets. It's a mixed bag, and it varies deal by deal. Luna: Given all that, if I were a young pharmacist thinking about buying an independent store, would you say that's a good idea in 2026? Lucas: I'd say it's higher risk than it was a decade ago, but there's still opportunity if you're in a growing area and can build relationships. The key is understanding the reimbursement landscape and having a plan to diversify revenue. PE firms are betting they can do that at scale — you have to bet you can do it at one store. Luna: So the future might be a few large platforms plus a handful of nimble independents, with the middle getting squeezed out. Lucas: That's the trajectory we're seeing in every industry we cover. The middle is always the hard place to be. But it's not inevitable — there are independents that thrive by focusing on outcomes and patient trust. That's a moat that's hard to replicate with a call center. Luna: And that might be the thing that keeps some of them alive. A pharmacist who knows your name and your prescriptions is a different service than a drive-thru window. Lucas: Right. And that's the bet some owners are making. The question is whether that personal touch can command a premium in a world where PBMs push everything toward the lowest cost. We'll see. Luna: Well, and on that note — we should probably check in next year and see if any of these platforms have actually delivered on their promises. I'd bet some will, and some won't. Lucas: That's a good thought for a future episode. For now, I think the takeaway is: if you're looking at a pharmacy deal, do your homework on the PBM contracts and the demographics. The roll-up machine is running, but it's not a sure thing.