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What do the current Interest Rates mean for pharmacy?

At its last meeting on Tuesday 4 April 2017, the Reserve Bank of Australia Board decided to leave the cash rate unchanged at 1.50%. As many of you would already be aware, we are currently in a very low interest rate environment. And it seems like we can’t go a week without hearing more news and speculation about what may happen to interest rates, when they are going to rise and how this has and will impact of the housing market throughout Australia. But what does it all mean for pharmacy? And how are these low interest rates impacting on the pharmacy business sales market?

1 – Low Cost of Debt

The main and most obvious impact of the low interest rates is that the cost of debt capital (in particular bank finance) for pharmacy owners is at historically low levels. The pharmacy market is largely funded by banks through finance on the purchase of pharmacies. As such, the low interest rates are very attractive for pharmacy business owners throughout Australia as the interest repayments for all should have decreased significantly in the past few years.

2 – Improved Return on Investment

Due to the low cost of capital, the actual return on investment has increased significantly for an owner who has finance on the pharmacy. Remember that whenever we talk about a capitalisation rate we are referring to the annual return from the investment (excluding any capital growth). This capitalisation rate provides the annual return assuming that the business is paid in full and does not allow for the impact of finance or leverage. Given that finance costs have decreased, it means that the effective return on investment for pharmacy owners has increased. This is making pharmacy a very attractive investment, especially when compared to other investment returns out there.

3 – Better Finance for Equipment Purchases

Also as a result of the low interest rates is a lower cost of financing equipment purchases. As such, it is making it much easier for pharmacy owners to invest in equipment such as dispensing robots, packing machines etc. This is allowing increased efficiency in pharmacy operations and hopefully leading to improved customer service and health outcomes for patients.

 

So, what does all of this mean for the pharmacy business sales market? Overall, the low cost of debt capital is making it a great time to buy pharmacies and also for current owners to pay down debt. This, coupled with a number of other factors, is leading to a very strong pharmacy business sales market – one of the strongest I have seen in my time as a pharmacy broker.

So in summary, whether you’re a current pharmacy owner, looking a buy a pharmacy or even looking to sell, the low interest rates have had a positive impact for everyone.

If you would like to discuss the pharmacy market in your area, please feel free to call me at anytime on 1300 ATTAIN (288 246). I look forward to discussing with you!

 

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