Disclaimer: Unless noted otherwise, views and analysis expressed here are the author's own and based on public sources. The article is intended for informational and entertainment purposes only. This is not financial advice. Please consult a professional for investment decisions.

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In today’s environment of radical transparency, the premise that one can achieve a multi-billion-euro investment outcome from a newspaper article seems absurd. 

Or does it? 

Italy’s largest pharmacy group Hippocrates Holding was founded by the Milanese financiers Davide Tavaniello and Rodolfo Guarino in 2017, after Davide read about the impending pharmacy market liberalization in a newspaper - and subsequently pitched the rollup idea to Rodolfo over a coffee. In less than a decade, Hippocrates has grown into a veritable retail behemoth:   

In hindsight, Davide and Rodolfo’s success was not a foregone conclusion. They didn’t come from money. They deliberately avoided the “captive PE” route. They had pedigree (UBS and Carlyle), but not much of a track record. After all, Davide was 33 and Rodolfo 28. The pharmacy ownership reform (Law 124/2017), which made the rollup feasible, spawned multiple copycat aggregators. Most astonishingly, Davide and Rodolfo had no LOIs to show to prospective investors.

But hey, it all worked out in the end!

By 2021, when Antin Infrastructure Partners came onboard, Hippocrates was generating approximately €200M in run-rate revenues. Since then, the aggregator has grown 6-fold - and shows no sign of slowing down. It closes a new acquisition every three days.  

We had waited for YEARS to ask Davide and Rodolfo how on earth they pulled it off. Finally, just after the summer the opportunity came up. In the interview we covered: 

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AP: Davide, let’s go back to the beginning! In 2017, you were an investment banker at UBS, in your early thirties, and you heard that something was changing in the pharmacy sector. What exactly happened?

Davide: Rodolfo and I first met at UBS, and we shared the same dream: to become entrepreneurs and to build something unique. Eventually, the opportunity came out of the blue. One July morning [in 2017], I was waiting for Rodolfo in a café. I skimmed an interview with a former Prime Minister about the liberalisation of pharmacy ownership. When Rodolfo arrived, I mentioned the article. A few days later Rodolfo called me to say he was in. After several months of analysis, by autumn, we were convinced of the opportunity.

AP: And the change you refer to is that non-pharmacists could now own pharmacies?

Davide: Correct. Before the reform, creating a pharmacy chain was virtually impossible. Ownership was limited to individual pharmacists, who could own - at most - 4 pharmacies in any given province. The reform separated the roles. Technical responsibility stays with a pharmacist - we are required to appoint a pharmacy director - while ownership can sit with a limited liability company. 

AP: How do you go from a coffee chat to raising €53M (€120M including the follow-on round in 2019) from Family Offices? Presumably your competitors were reading the same newspapers. What gave you the early edge, and what arguments did you use to convince the investors?

Davide: Since the business case was entirely predicated on market consolidation, key success factors were M&A skills and speed of execution. Rodolfo and I had those skills from Carlyle and UBS, respectively. 

The sector helped too. In Italy, for minor ailments, people visit the pharmacy rather than the GP. The pharmacy really is the first point of access to the national health service. On average, Italians visit pharmacies 9 times a year. 

This peculiarity would make it difficult for multinational consolidators to enter the market, providing an opening for an upstart like Hippocrates. Conversely, for our early investors, Italian Family Offices, the opportunity was very tangible: in customer experience, in category development, in the ability to recommend and cross-sell products. 

Putting it all together, we had a story that was easy to understand and access to Family Offices. We got to know many of them during our careers, which gave us credibility. These families in turn introduced us to other families.

Rodolfo: The snowball effect definitely helped. Because the first 5 or 6 meetings were all a yes, so from the second meeting onwards you could say, “By the way, X, Y and Z are investing.”

Being clear on governance helped as well. We were adamant that Hippocrates was going to be our company. We were not looking for a fund to underwrite 80% of the equity. We rejected €20-30M offers that came with strings attached: board representation, dilution through stock options. Every founder faces the trade-off between money and governance. Having a fragmented shareholder base definitely made our life harder - more meetings, more people to convince - but with the snowball effect behind you, it worked.

AP: Rodolfo, was it a conscious choice to raise from Italians rather than, say, Americans? And did having those families on board help with seller outreach?

Rodolfo: In one sense it was the obvious choice. Neither Davide nor I come from money. We invested everything we had, but unfortunately it was very little. These families were our closest relationships. As for foreign investors, think back to 2018. The number of roll-up case studies was zero. There was no culture around it. And pitching Italy to a foreign investor involves ticking through a long list of weaknesses and threats. 

AP: Rodolfo, a money question for you. When you buy a pharmacy, what do you actually acquire? And what happens to the owners?

Rodolfo: It’s important to understand that the liberalisation was about ownership, not the business model. Pharmacies in Italy remain heavily regulated. You cannot open a new pharmacy; you can only buy an existing licence. Licences are perpetual - once you own one, it’s yours - but you cannot freely transfer them, because each licence is tied to a designated municipal area. In practice, we acquire limited liability entities that hold those licences.

Further, prices and margins on prescription drugs are set by law. And pharmacies are the only businesses allowed to sell prescription drugs in Italy.

Regarding real estate, we have bought property on a number of occasions, particularly after Antin Infrastructure became our majority owner. We now own the real estate that represents approximately 20% of the network. But that is a sister initiative. Our focus is 100% on pharmacies.

AP: Davide, Italy has around 20,000 pharmacies. About 20% more than Germany, with a population roughly 30% smaller. With swelling ranks of pharmacy aggregators, is that number shrinking? Can a pharmacy be closed? And with the Italian economy flat at best, are some pharmacies struggling with their unit economics?

Davide: Let’s go back to my earlier point about pharmacies being the first point of access to the health service, and add Italy’s structural features. 

Italy is the oldest country in Europe, and the second oldest in the world after Japan. 25% of the population is over 65 (for context, the US is at 18% and France at 22.5%), and drug consumption clearly correlates with age. For elderly people, proximity matters.

At the same time, due to a political decision to consolidate small hospitals into bigger hubs, pharmacies have become what I would call proximity healthcare infrastructure. The range of services provided by pharmacies has grown in recent years, reflecting the evolving needs of an elderly population. I do not foresee a reversal of this trend. Italy’s high debt-to-GDP ratio (RollUpEurope note: c.140%) leaves little room to rebuild local healthcare infrastructure. 

The flip side of a high installed base - Italy has one pharmacy per 2,900 inhabitants, versus EU average of 3,200 and 4,400 in the UK - is the decline in the number of new licenses issued. 

AP: Rodolfo, let’s talk about the first acquisition. A common refrain in our interviews is this. 2 Finance alumni decide to do something very technical - think pharmacies or HVAC - and the first barrier is credibility with sellers. Did you walk up to a pharmacist and say, “We’re two guys from Milan and we want to acquire your business”?

Rodolfo: These days we meet plenty of people who claim to have secured a platform or the first set of acquisitions, prior to securing financing. This was NOT our experience. We raised €53M in equity with not a signed LOI (plus an additional €65M in June 2019). 

AP: Wait, what? You closed a round with zero LOIs?!