After nearly 30 years as a privately held business, pharmacy retail giant Chemist Warehouse is ready to list on the Australian Securities Exchange (ASX). Earlier this week, it was revealed that ASX-listed Sigma Healthcare would acquire Chemist Warehouse, taking the business public through a clever backdoor-listing approach. A benefit of this strategy is the ability to bypass regulatory filings, or the funding to go public. In the case of Chemist Warehouse, the acquisition would position it as a
as a superpower in the Australian pharmaceutical market, dominating the wholesale and retail markets through vertical acquisitions across the value chain.
This move would make the retailer more attractive to investors, as it would allow for high margins with a triple threat business model of wholesale, distribution and retail.
Sigma Healthcare is a full-line wholesale and distribution business with a pharmaceutical network consisting of over 1200 branded and independent retailers including Amcal, Discount Drug Stores, Guardian pharmacies and PharmaSave.
A humble family affair
Chemist Warehouse was established in 1995 by Jack Gance and Mario Verrocchi, with five pharmacies under the My Chemist Retail Group banner. Today, it has over 500 stores globally.
The founders reengineered the classic pharmacy model, by concentrating on a retail-rich approach.
Brother to Jack, Sam Gance is the CEO of Chemist Warehouse and the co-founder of Australis, a pharmacy distribution business known for its Le Specs and Le Tan brands, which the Gance brothers launched in 1976.
They sold Australis in September 1991 to the Smorgon Family.
Global market expansion
In 2000, the bold-blue and bright-yellow discount chemist retailer Chemist Warehouse opened its first store under the brand identity it is known for today in Melbourne.
New Zealand was naturally the first international market for the retailer in 2017, and it now has 48 stores there.
In 2020, the discount chemist opened its first retail store in Ireland and now has just opened its ninth in the country this week, with plans to open two more in January 2024.
A flagship store in Zhengzhou, China was opened in 2019 and the country’s current count of bricks-and-mortar stores is seven. Prior to this, the business had been selling online in the country since 2015.
Why pay more
The merger of Chemist Warehouse with Sigma would allow the retail chain to increase its profits margins by taking the pharmaceutical portion of its business in-house – and establish wholesale, distribution and retail capabilities.
CEO and founder of The Retail Doctor Group Brian Walker told Inside Retail, “That’s far more attractive to investors, because it’ll drive the capital value set. So the capital value of Chemists Warehouse would increase from roughly $5 billion to $8 billion with the Sigma acquisition.
“The margins should be much higher for a start, because then it’s almost like buying their own home brand factory,” Walker said.
Dividends paid out in the last financial year amassed to a cumulative $365 million and $264 million of this was distributed between the two founders’ families and $101 million in dividends paid to the directors.
Walker added that “the Sigma deal that they’re proposing recognises the power and significance of the brand. It’s able to engineer across vertical play.
“Listing on the ASX would well position the company to increase its current and potential market share overseas.
“They’ve certainly been achieving double-digit growth,” Walker said, and with the retailer’s dominance in Australia, “it’s about ascendancy and scale, they certainly are looking to scale across the value chain, such as the sigma transaction.”
In Walker’s opinion, this is just the beginning of Chemist Warehouse’s growth ambitions.
“They’re looking to play in the health market as well, hence the Sigma transaction, the health sector has about a $200 billion value in Australia, so worldwide there is a lot more to build,” Walker said.