First round bids for the 65% stake in the properties sit at circa AUD130 million representing a total market valuation on the portfolio of circa AUD200 million. If the sale ultimately completes, this move will allow Sigma to realise a maximum value on these key assets while still retaining full control of the same assets through favourable long-term (15-year) leases. The realisation of assets will raise much needed capital for Sigma to reinvest into projects that could drive significantly more future income than the current return on its industrial properties.
It is well known Pharmaceutical Wholesalers such as Sigma, API & Symbion operate at incredibly tight margins and as such need to be highly creative in growing their networks. The Wholesaling market is so competitive that many industry experts believe there is only enough room for two major wholesalers in the industry.
With the limitation on Pharmacy Approval Numbers imposed by the Pharmacy Location Rules as published by Department of Health, the main opportunity for growth in the wholesaling industry is essentially winning over customers from your competitors and, supporting your existing customers in growing their networks. There are a few different ways of presenting strong offers to your market however as with almost all growth opportunities, you need capital in order to be able to execute these.
Given the COVID-19 climate, Sigma is clearly forward thinking to a time where its customers may find funding growth of their own harder to come by. With major financiers heavily impacted by current nationwide lockdowns and forced temporary closures of many of their customers businesses impacting both owners and employees, the major banks are downgrading profits and dividends. Sigma are potentially preparing for a more difficult borrowing environment.
This bold strategy could give Sigma a competitive advantage in its industry in the coming twelve to twenty-four month period and, Sigma customers would be well placed to watch closely, particularly if they have strong growth aspirations in their own networks.