Segulah pockets €175m on Medstop sale

The exit to pharmaceuticals group Oriola-KD is the first by the Swedish firm’s Fund IV, a 2008 vintage now 70% invested.

Stockholm-headquartered Segulah has sold pharmacy chain Medstop to trade player Oriola-KD. 

The transaction, still subject to regulatory approval, values the company at SEK1.5 billion (€175 million, $228 million). Segulah declined to comment on return multiples, but said it was very pleased with the outcome of the process. 

The firm acquired Medstop in February 2010, as part of the privatisation of pharmacy monopoly Apoteket AB. Due to a dramatic increase in competition following the sector’s deregulation, pharmaceutical retail was then a very challenging market, said Sebastian Ernrooth, a partner at Segulah. “Whilst we had expected the competition to increase as a result of the deregulation, we didn’t expect it to increase so rapidly.”

In spite of these difficulties, the firm proceeded to grow the company organically, achieving productivity gains, developing the product offering and enhancing the quality of service, he said.  

They are the perfect match. Oriola-KD lacked a real presence in exactly those regions where we were strong

Sebastian Ernrooth

But whilst the firm was satisfied with the extent of operational improvement this strategy achieved, Medstop now needed the support of a larger group to find its place in an increasingly consolidating market, he explained. “We think the company is in good … shape, but it’s not at the scale where it can actually be sustainable in this market. Partly because of the size itself, and partly because we believe the pharmacy market will move towards a model which I would call integrated – where wholesale and retail activities are handled by the same operators.”

Oriola-KD, as the Nordic region’s largest integrated pharmaceuticals distribution company, was well placed to provide Medstop with the critical size and backing to continue thriving in a shifting market, he said. “We would never have been able to develop a wholesale operation on our own.”

Medstop operates a total of 65 pharmacies located in the Stockholm, Malmö and Gothenburg areas, which generated SEK2.3 billion in 2012. Upon completion of the transaction, Oriola-KD will have more than 300 outlets in Sweden, and its market share will jump from 14 percent to approximately 21 percent. “They are the perfect match. Oriola-KD lacked a real presence in exactly those regions where we were strong, so by acquiring Medstop the group gets access to the growth regions of the Swedish economy,” Ernrooth said.

Medstop was an acquisition from the firm’s Fund IV, which closed on SEK5.2 billion in 2008. The vehicle, now 70 percent invested, is expected to complete two more platform acquisitions before being fully deployed.