Chemist Warehouse's backdoor listing

Australia's Sigma Healthcare, announced on 11th December 2023 that it would merge with privately owned pharmacy giant Chemist Warehouse Group to create a $8.8 billion entity. Sigma submitted its submission to the ACCC in February 2024, and on 8 March 2024 the ACCC commenced a public consultation process.

Chemist Warehouse is a staple in most Australian households but here’s what you probably don’t know: Pharmacists in Australia can only own 5 separate pharmacy businesses. While the rules are different in every state and territory, they largely prevent corporate ownership by non-pharmacists and even limit the number of outlets a single pharmacist can own.

Jack Gance (Co-Founder) has taken Chemist Warehouse from a single pharmacy to over 500 across Australia, with an annual revenue of over $3 billion, over the past two decades. But how did Gance get past this 5 pharmacy limit?

Here’s the story:

The Very Beginning

Jack Gance’s story begins in 1979 when he launched sunglasses brand, Le Specs.

Le Specs was launched as a pharmacist-to-pharmacist wholesaler and Jack, a qualified pharmacist, had the insider’s advantage of being a relatable colleague familiar with how pharmacists should position the product. Jack was able to distinguish Le Specs, which had a unique feature of being unbreakable, from the hundreds of other sunglass products and distributors to garner the support of fellow colleagues.

To get Le Specs off the ground, Gance struck up a deal with a marketing agency, who would help with branding and launching the product. This deal was unique because the agency would take a percentage of sales rather than the standard upfront agency fee.

This structure de-risked the venture for Gance by limiting the initial capital outlay whilst also creating an incentive structure that drove the advertising agency to deliver results.

The success of Le Specs was driven by Gance’s ability to deliver on three fronts:

• Using strategic advantages

• Minimising initial risk & capital outlay

• Aligning incentives

Competitors followed Gance into the space after seeing his success but they were unable to match the Le Spec distribution channels that was built around his pharmacist qualification.

The Moment Of Change

In 1991 Le Spec is sold and Jack Gance & his brother Sam focus on developing a pharmacy business.

In 2000 Chemist Warehouse is founded and the first store is opened in Melbourne. Pharmacies were known to be cash cows but they required a Pharmacy Business License, which was restricted to registered pharmacists, and each license only allowed up to five separate pharmacy businesses.

However Jack & Sam found a loophole*, providing a massive opportunity—and they took it. Some states, including Victoria allowed ‘friendly societies’ – better known for offering members life insurance and other benefits – to operate around 70 pharmacies. So the growth continued.

Their two part gameplan:

• Economies of scale: having more pharmacies brings scale & buying power from suppliers, which in turn enables low pricing, creating a flywheel effect

• Cross sell: Increase ‘front-of-shop’ sales, customers come for their prescription and walk out with a range of products

As you can probably guess: it worked.

*Eventually the loophole was closed and the business needed to move to a franchise model with franchisees required to hold a license. The company now has over 200 managing partners in the unique structure, allowing it to continue to grow.

The Pinnacle Of Success

Today Chemist Warehouse has risen to a wild level of success—way beyond they probably ever thought possible for themselves.

• Over 600 pharmacies in the network

• $7.9 billion in sales across the network last year

• $8.8 billion merger with Sigma Health

What does it mean for Jack & Sam Gance personally? Forbes estimate their net worth as at 2024 to be $1.7 billion

Here’s the Deal

Going Public

Chemist Warehouse will go public through a reverse merger of Sigma Health with Chemist Warehouse shareholders to receive a $700 million payday and to hold just under 85% of the shares in the combined entity, with Sigma shareholders to retain the rest.

Over 50% of these shares are held by founders Jack & Sam Gance (12.9% and 12.75%) and Chemist Warehouse CEO Mario Verrocchi (22.3%), which are restricted from trading until at least August 2025.

Chemist Warehouse has plans to become the next Walgreens following a 100-year growth strategy including rapid overseas expansion plans.

Investor Reactions

Investors reacted positively to the news of the proposed merger with the share price skyrocketing 75% following the announcement.

This price has continued to tick up & to the right in the months following with investors appearing confident that the deal will be completed successfully.