Global private equity and venture capital investments in drug retail companies slowed in 2023 with deal value at $560 million across eight deals for the year through Oct. 22, or only a quarter of the $2.23 billion investment total in full year 2022 across 24 transactions, S&P Global Market Intelligence data shows.
Deal count in 2023 is on track to be the lowest since 2019.
In the third quarter, private equity-backed investments, including whole company and minority stakes acquisitions and funding rounds, totaled $160 million, down from $500 million of investments in the third quarter of 2022. The number of deals fell to four from nine.
Investment value in fourth-quarter through Oct. 22 picked up, boosted by a single transaction worth $350 million.
Headwinds in retail pharmacy
In the US, retail pharmacy is facing saturated retail locations, labor shortages, inflationary pressures, as well as a leveling-off of generic drug penetration, according to a McKinsey & Co. report. The industry is also entering a rationalization phase after a wave of consolidations in the past decade, and in recent years announcements of store closures by large players.
Major drug retailers Walgreens Boots Alliance Inc. and CVS Health Corp. announced plans to reduce their store counts in 2019 and 2021, respectively. Rite Aid Corp., meanwhile, filed for Chapter 11 bankruptcy Oct. 15.
In October, the US drug retail sector carried the highest default risk across all retail categories, according to Market Intelligence's Market Signal Probability of Default model.
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The largest deal of the year through Oct. 22 was the announced acquisition by PCP GP LP of a minority interest in Neighbourly Pharmacy Inc. for $349.7 million. The deal is expected to close in the fourth quarter of 2023 or early in the first quarter of 2024.
The second-largest transaction was the $120 million funding round of Alto Pharmacy LLC. The financing round was led by FJ Labs Inc.