Compounding pharmacies, a prescription for M&A

Compounding pharmacies are a safe bet for positive return on investment

Drug compounding is the process of combining, mixing or altering ingredients to create medication tailored to the needs of individual patients. Compounding also includes the combining of two or more drugs.


The role of compounding pharmacies is to create drugs prescribed by specialists or doctors for patients with needs that cannot be catered to by commercially available medications. Compounding pharmacies can address an individual’s need for a compounded medicine by offering dosages, routes of administration and flavors that are commercially unavailable.


A growing elderly population looking for better care along with an increasing shortage of drugs including emergency drugs and cancer medicines is boosting the demand for compounding pharmacies across the globe and accelerating overall market expansion. The compounding pharmacies market is expected to achieve over 5.5% CAGR from 2020 to 2026, reaching a total value of US$14 billion.


The European compounding pharmacies market held a considerable revenue share in 2019 and will witness around 5% CAGR during the forecast period. Growing acceptance of compounding medication along with favorable reimbursement policies in this region will foster general industry progression.


In addition to high growth, favorable market features include: (i) a non-cyclical market where players fulfil a mission-critical role of providing indispensable pharmaceutical goods, (ii) long-term contracts with drug developers ensuring production and long-standing strategic partnerships, and (iii) asset-light business models with high cash conversion levels protected by multiple entry barriers.


Drug compounding is an attractive market from an M&A perspective as well. Companies are active in a non-cyclical market where participants fulfil a vital role by providing essential pharmaceuticals whose sale generates attractive margins. The primary motivations for strategic deals are to: (i) increase share of wallet at pharmacies and hospitals, (ii) expand range, and (iii) expand international presence with registered products.


Despite the COVID-19 pandemic, private equity—driven (PE) demand is expected to remain high, given the industry’s attractive top-line growth, profit margins and resilient nature.

The Benelux pharmaceutical market has experienced a strong M&A environment over the past 5–6 years on the back of a scattered market player landscape, asset-light business models and high cash conversion levels. ROBERT BOERSMA, OAKLINS' HEALTHCARE SPECIALIST

Appealing industry dynamics result in PE involvement, consolidation and attractive valuations

M&A activity in the drug manufacturing and development market has returned to pre-COVID-19 levels.


While clinical trials have ceased in the USA and abroad, demand for later-stage development and manufacturing has increased substantially, particularly for pre-clinical development. With drug manufacturers adjusting to manage clinical trials in a higher-risk environment, businesses continue to flourish in the current market. This bolsters a vivid M&A environment with buyers on the lookout for resilient assets, a trend that is expected to continue in the coming quarters.


In addition to the private market, the public market is also experiencing an upturn, benefiting from positive sentiment in the current pandemic, where drug manufacturing and development is regarded as an essential activity.

PE interest is also expected to fuel M&A activity as PE investment in healthcare remains elevated due to strong underlying fundamentals including demographic trends, stable revenue streams and their designation as essential businesses.

This article is an extract from our earlier published Dutch private equity newsletter

Talk to our industry specialist

Robert boersma
Robert Boersma Amsterdam, Netherlands
View profile

A few of our recent healthcare transactions

Related Private Equity articles