Walgreens in Ongoing Talks for Private Equity Acquisition
Walgreens Boots Alliance shares rose by 5% following news that the company is in talks with Sycamore Partners for a potential acquisition, leading to a temporary halt in trading due to volatility. This deal could take the pharmacy chain private after nearly a decade of steady share price decline in the public market.
According to reports cited by the Wall Street Journal, if the ongoing negotiations are successful and do not falter, it is possible that an agreement could be finalized early next year. Walgreens, which was valued at over $100 billion in 2015, currently has a market valuation of around $7.5 billion. The company's stock value has dropped approximately 70% this year under the weight of challenges in both its pharmacy operations and retail segments.
New York-based private equity firm Sycamore Partners, known for its retail and consumer investments, typically focuses on smaller transactions. However, acquiring Walgreens would represent a significant undertaking for the firm, which may consider selling off parts of the business or establishing partnerships to facilitate the deal.
Walgreens has grown over the past decade to become a familiar presence in neighborhoods across the U.S., Latin America, and Europe. The company operates over 12,000 stores and has recently invested in health clinics to expand its services.
The company's expansion included the ambitious acquisition of European pharmacy giant Alliance Boots in 2012, with the full takeover completed in 2015. However, this expansion has faced financial challenges, leading to discussions about the sale of the Boots chain.
Walgreens and its chief competitor CVS Health are grappling with stagnant margins in the prescription drug distribution business and are contending with payment pressures from pharmacy benefit managers and a challenging retail environment dominated by e-commerce platforms like Amazon.
Unlike CVS, which diversified by acquiring a pharmacy benefit manager and an insurance company, Walgreens has continued to focus on its retail pharmacy operations. In October 2023, CEO Tim Wentworth initiated efforts to revitalize the company, including store closures and downsizing the primary care business.
The possibility of a private equity acquisition has been a topic of speculation for Walgreens, as the company's size was previously seen as a barrier. It was reported that KKR made a $70 billion offer for Walgreens in 2019, which would have been one of the largest privatization deals if it had gone through.
The private equity sector has shown less interest in retail acquisitions following several high-profile failures, like Toys "R" Us, making financing for such deals more challenging. Sycamore Partners, known for its acquisition of Staples in 2017 and interest in Kohl's in 2022, is currently investing in retail brands including Ann Taylor Loft, Aéropostale, and the Belk store chain.