Walgreens is reportedly exploring selling itself to private equity firm Sycamore Partners. It might be the right decision for the company, some experts say.
\nThe post Why Walgreens Is Reportedly Considering A Private Equity Buyer appeared first on Above the Law.<\/p>\n
Is anyone surprised that Walgreens<\/a> is looking to sell itself \u2014 reportedly<\/a> to private equity firm Sycamore Partners?<\/p>\n Walgreens has been losing a lot of greenbacks lately: a whopping $8.6 billion of them in fiscal 2024<\/a>. Its foray into primary care has been a challenge forcing it to close a series of VillageMD clinics<\/a> nationwide. Even its pharmacy business has faced competition from nimble, online pharmacy retailers like Amazon Pharmacy and Mark Cuban\u2019s Cost Plus Drugs and fallen casualty to drug prices being negotiated.<\/p>\n And investors have paid attention to its missteps. Over the past five years, the stock price of the retail giant, if we can even use that term anymore, has floundered \u2014 it is currently trading at less than $10 down from a high of nearly $40 at the end of 2019.<\/a>\u00a0<\/p>\n So, when the Wall Street Journal reported last week that Deerfield, Illinois-based Walgreens<\/a> is exploring a sale, the struggling retailer\u2019s shares jumped by about 17% that day.\u00a0<\/p>\n If a deal were to take place, there could be a potential buyout of about $9.2 billion to $10 billion, wrote Erin Wright, an equity analyst with Morgan Stanley, in a research note following the WSJ report. It\u2019s slim pickings given that the global investment firm KKR made a $70 billion offer to buy Walgreens in 2019, according to the Financial Times<\/a>. A report<\/a> from Pitchbook showed that the deal reportedly stalled because KKR and its prospective financiers couldn\u2019t agree on Walgreens\u2019 valuation.<\/p>\n Given its diminished status, is selling to a private equity buyer a good move for Walgreens?<\/p>\n The answer appears to be \u201cyes\u201d for some experts.<\/p>\n \u201cAt this point, some fresh thinking is needed to reconceptualize how the company\u2019s assets can be more fruitfully employed,\u201d said Michael Abrams, managing partner of Numerof & Associates<\/a>, a consulting firm.<\/p>\n Walgreens and Sycamore Partners declined to comment. Why Walgreens May Want to Sell Itself<\/strong><\/p>\n The rumors about Walgreens considering a sale come after nearly a decade of efforts to restore growth, according to Abrams. During that time, its market value fell from over $100 billion to below $8 billion, he said.\u00a0<\/p>\n He added that the company has attempted numerous strategies to turn things around, including expanding into Europe with its acquisition of Alliance Boots and buying a stake<\/a> in primary care provider VillageMD for about $5.2 billion.\u00a0<\/p>\n \u201cThe fact of the matter is that the pharmacy business is a mature one with flat margins in the core function of dispensing prescription drugs,\u201d Abrams said. \u201cAdd to that growing pressure from pharmacy benefit managers who negotiate drug prices on behalf of insurers and employers, and Walgreens\u2019 extraordinary network of over 12,000 stores is less an asset than a liability.\u201d\u00a0<\/p>\n He added that sales for retail products have faced increased competition from Amazon and other e-commerce sites.<\/p>\n The hope is that selling to a private equity firm could help Walgreens make operational improvements and grow, according to Keith Campbell, the leader of West Monroe\u2019s merger & acquisition practice. West Monroe is a consulting firm.<\/p>\n \u201cBy closing underperforming locations and leveraging sale-and-leaseback transactions, Walgreens could reduce debt and streamline operations,\u201d Campbell said. \u201cOnce the retail business is stabilized and cash flow positive, the focus could shift to high-growth segments like home care and rare\/orphan drug compounding.\u201d<\/p>\n But why Sycamore Partners? After all, the company doesn\u2019t have much experience in healthcare. It has historically done smaller deals than Walgreens and would probably have to sell off parts of its business or bring in partners to get the deal through, Abrams pointed out.<\/p>\n The key attraction could be that the New York-based firm specializes in retail and consumer investments. Abrams stated that its portfolio includes office supply store Staples and clothing stores Hot Topic, Ann Taylor and Chico\u2019s.\u00a0<\/p>\n
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