The Boots meal deal is a UK cultural phenomenon. The customer pays one price, and gets items that, sold separately, would cost a fair bit more. Private equity firm Sycamore Partners presumably thinks it can do something similar with the high-street chain’s owner, Walgreens Boots Alliance.
Sycamore has made a name for itself investing in struggling US retailers. Over the years, it has made big bets on office supply chain Staples and faded fashion brands like Ann Taylor and Talbots. Now the New York buyout firm is offering up to $23.7bn for Walgreens, once debt and the potential future payouts are included: a huge deal by recent standards.
At first glance, Sycamore appears to have snagged a bargain. Walgreens — whose 12,700-store transatlantic empire also includes Duane Reade stores in the US — had a market valuation of $100bn just 10 years ago. In 2019, buyout group KKR held talks to acquire the company’s equity for around $56bn. Sycamore’s bid values it at around $10bn, or closer to $13bn if certain parts can be sold off successfully.
Sometimes assets are cheap for a reason. Walgreens reported a near-$9bn net loss for its 2024 fiscal year. Its balance sheet is burdened: backing out the equity price suggests Sycamore sees around $11bn of net debt plus legal liabilities and other obligations, more than triple Walgreens’ estimated ebitda for the current accounting year, according to LSEG estimates.
Nor is there much room for extra borrowings. Already the group paid $482mn in interest last year, and analysts expect Walgreens to produce negative free cash flows this year, with very modest revenue growth and wafer-thin operating margins.
The fact that Stefano Pessina, Walgreens’ chair and its largest shareholder, is rolling over his 17 per cent stake, is helpful. And Sycamore will no doubt be looking to split the company up and sell off units to drum up cash. It plans to offload primary care businesses, which include Village Medical and CityMD.
Might there be buyers for the other bits? Walgreens tried to offload Boots back in 2022 but failed. While sales have improved since then, high interest rates and the economic uncertainty caused by Trump’s tariff wars could keep potential buyers on the sidelines.
Still, it’s worth a shot. Being a public company has done little to fix Walgreens’ many problems. The shares have fallen nearly 90 per cent in a decade. Private equity ownership could just take Walgreens’ slow and painful financial decline and put it out of public view.
Then again, buyout firms are paid high fees to take unusual risks — and Pessina, who over the decades turned a family business into a global giant, has his legacy to consider. Perhaps Walgreens is the ideal patient for some experimental treatment.
pan.yuk@ft.com
john.foley@ft.com