DEAL REPORTER
FEMSA (FEMSAUBD:MX), Coca Cola´s largest bottler outside the US, is aggressively looking to acquire drug store chains through its arm FEMSA Comercio, an IR officer told Mergermarket. The company is seeking to enter Mexico City, Monterrey and Guadalajara, markets where it does not currently operate, said the officer.
Reaching a scale of more than 1,000 units would give the owner of the ubiquitous OXXO convenience store chain enough leverage to negotiate directly with drug makers, the officer said.
FEMSA currently operates roughly 600 units in the South of the country through its majority-owned brands Farmacias YZA and Farmacias Moderna, as well as 200 more units under its recently acquired brand Farmacias Farmacon, located in the Northeast of the country. The Farmacon deal is expected to close in 2Q15, the officer said.
There are currently three drugstore formats in Mexico right now, according to the IR officer. That of Farmacias Guadalajara is like a mini supermarket, with sales of drugs accounting for 50% of sales, and around 400-500 sq m in layout. Benavides, acquired by Walgreens Boots Alliance (WBA), maintains a mid-sized format of 250 sq m, where home and beauty products account for a big part of sales; and Farmacias del Ahorro is around 100 sq m in size, with 80% of sales coming from drugs, the officer said.
"FEMSA would like to have a smaller format, the size of an OXXO (90 sq m), where drugs account for 50%-60% of sales, 25% comes from beauty products, and the rest from convenience products," he said.
Farmacias San Pablo and Farmacias Farmatodo are seen as likely targets and have long been subject to speculation in the local press. San Pablo has 61 units in the Mexico City area, according to a source close to the company. Farmatodo has around 150 units in Mexico City, Puebla and Queretaro, according to its website.
“It is not easy to create a national network because there are few national chains in Mexico you can buy, so you have to go little by little,” said a sector banker, speaking about consolidation opportunities in the country. “FEMSA´s interest has also had the effect of pushing valuations up to 10x or 11x EBITDA, and there are at least two players from South America who want in, plus a few Europeans.”
According to the National Association of Drugstores of Mexico (ANAFARMEX), there are close to 40,000 drugstores in the country. Most of the businesses are “mom and pop shops,” and that is not going to change in the next five to ten years, according to a consultant and the banker.
Farmacias Guadalajara (FRAGUAB:MX) is seen as the biggest in the country, according to the banker. It ended 2014 with 1,322 drugstores in 23 states of the country, plus Mexico City, according to official filings with the Mexican Bolsa (MexBol). Sales for the full year were MXN 32.03bn (USD 2.09bn), according to the filings.
Farmacias del Ahorro, seen as the second largest, does not disclose its figures, but its CEO told the press last year it was expecting to end the year with close to 1,300 units.
Walgreens Boots Alliance is third in the country after last year it acquired 1,000 drugstores in Mexico operated under the names Benavides and ABC from Casa Saba. The MXN 8.5bn (USD 557.11m) deal included 400 additional units in Chile under the brand Ahumada.
Mirtha Luque, IR officer at Farmacias Guadalajara, did not respond to requests for comment. Farmacias SanPablo did not immediately respond to e-mails seeking comment. Farmatodo did not immediately respond to e-mails seeking comment.