This article first appeared in The Edge Malaysia Weekly on July 24, 2023 - July 30, 2023

THE country’s two largest retail pharmacy chains BIG Pharmacy Healthcare Sdn Bhd and Caring Pharmacy Group Bhd are merging in a RM850 million deal to create a group with more than 400 outlets and RM2.3 billion in annual revenue.

The merged entity will have a clear lead ahead of other major players in the market, including Alpro Pharmacy and Health Lane Family Pharmacy.

It is understood that the combined entity could operate several brands under the group, including BIG Pharmacy, Caring, Wellings and Georgetown.

The merged group will have an 11% share of the 3,500 pharmacies in the Malaysian market, according to an industry estimate.

“The market is growing at 8% to 9% annually and fragmented, with 50% of pharmacies owned by mom-and-pop set-ups,” the industry insider says.

Last Friday, 7-Eleven Malaysia Holdings Bhd announced that it had accepted an offer from BIG Pharmacy Healthcare Sdn Bhd to sell its 75% stake in Caring for RM637.5 million, confirming an earlier report by The Edge that the group had sealed a deal for the disposal of the pharmacy chain.

BIG Pharmacy is also acquiring the remaining 25% stake in Caring from Motivasi Optima Sdn Bhd, which is owned by seven people, including Caring founder and managing director Chong Yeow Siang, who holds an 18.65% stake.

According to 7-Eleven Malaysia, BIG Pharmacy had proposed an equity valuation of RM850 million for the 100% stake in Caring. BIG Pharmacy is backed by local private equity firm Creador.

The valuation of  RM850 million was arrived at based on a price-earnings (PE) multiple of 19.6 times Caring’s reported profit after tax and minority interest (excluding Indonesia) for its financial year ended Dec 31, 2022 (FY2022), of RM43.4 million.

Going by Creador’s track record as a private equity fund, the market could see the return of the combined businesses of BIG and Caring later on.

In response to a query by The Edge, Creador founder and CEO Brahmal Vasudevan says it plans to list the retail pharmacy business in the next three years.

Creador floated Mr DIY Group (M) Bhd and CTOS Digital Bhd in 2020 and 2021 respectively.

Caring was listed in late 2014 and delisted in May 2020, following a mandatory takeover by 7-Eleven Malaysia at RM2.60 a share, which valued the retail pharmacy group at RM566 million.

Based on its net profit of RM25.6 million for FY2019, Caring was taken private at a PE multiple of 22 times.

Last Friday, 7-Eleven Malaysia said its board had accepted the offer that its wholly-owned unit Convenience Shopping (Sabah) Sdn Bhd had received from BIG Pharmacy in the form of a binding term sheet dated June 28, subject to the execution of a binding agreement for the deal.

“The offer includes the acquisition by the purchaser of all of Caring’s subsidiaries and associated companies, which own and operate the retail pharmacy businesses under the CARiNG, Georgetown and Wellings brands, as well as any manufacturing and distribution of in-house products in Malaysia,” its filing reads.

The offer includes the acquisition of all intellectual property rights owned and used by Caring Group and its Indonesian businesses, but not the ownership of the businesses in Indonesia that are operated by PT Era Caring Indonesia — a 50.1%-owned indirect joint venture of Caring and PT Era Farma Indonesia — that will be carved out from the deal. PT Era Farma Indonesia is a 49.9%-owned indirect joint venture of Caring.

7-Eleven Malaysia said the disposal, which is expected to net the group a yet-to-be-disclosed one-off gain, provides it with an opportunity to unlock and monetise its investment in Caring.

Post-disposal, 7-Eleven Malaysia expects to redirect its resources to grow its convenience store business. As to how the group plans to use the proceeds from the sale, it said details would be announced upon the signing of definitive documents for the disposal, including the sale and purchase agreement.

The disposal is subject to approval from the group’s shareholders at an upcoming extraordinary general meeting.

Meanwhile, BIG Pharmacy says the acquisition represents a strategic step in the group’s mission to elevate the quality, accessibility and affordability of healthcare for Malaysians.

“This strategic move aligns perfectly with our mission to enhance healthcare outcomes and widen service access. By combining our expertise and resources, we aim to deliver an unparalleled healthcare experience, reaffirming our commitment to community engagement,” BIG Pharmacy CEO Lee Meng Chuan says in a statement.

BIG Pharmacy, a subsidiary of BIG Pharmacy Group, was founded in 2006 by Lee and his wife, Lim Sin Yin. Its first retail outlet was in Damansara Uptown and has since expanded to more than 270 retail pharmacies across Malaysia.

For the financial year ended June 30, 2022, BIG Pharmacy’s net profit more than doubled to RM31 million from the previous financial year.

Caring was founded in 1994 by five pharmacists, including Chong, who were course-mates at the School of Pharmaceutical Sciences, Universiti Sains Malaysia, according to its website. Its first outlet was in Taman Muda, Cheras. 

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