Walgreens is reportedly considering selling itself to private equity (PE) firm Sycamore Partners, but experts are skeptical a deal will come to fruition.
According to the Wall Street Journal, Walgreens and Sycamore are in talks to close a deal in early 2025, though neither provided financial details. The news comes as Walgreens’s market value has shrunk from more than $100 billion a decade ago to $9 billion as of December 9.
While they don’t think such a transaction likely would face any regulatory scrutiny, analysts say it may be far-fetched.
“We see many challenges to getting a Walgreens take-private across the goal line, from [Walgreens’s] already high level of debt, to the company’s expected lack of free cash flow, to just the core challenges, to the retail pharmacy segment, to Sycamore lacking the scale to pull off the transaction,” Deutsche Bank analyst George Hill wrote in a December 10 note.
This isn’t the first time Walgreens has tried to sell itself to a PE firm. Bloomberg reported in 2019 that PE giant KKR made an offer to take over the chain, but the deal fell through.
“In short, we see a less than 25% probability of a deal getting done,” Hill wrote.
What a deal would mean. If a deal does go through, it would take Walgreens off the public market. That could be beneficial for the chain, as it means it would no longer be required to publicly report its financials, and executives could focus on restructuring the company without worrying about as much public scrutiny, according to Hal Andrews, president and CEO of healthcare analytics firm Trilliant Health.
Rajiv Leventhal, senior analyst in digital health at research firm eMarketer, said a deal could also help get rid of Walgreens’s debt and liabilities. As of its most recent earnings report, the company has about $9.5 billion in debt and $1.7 billion in consolidated operating income.
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Walgreens would also likely face restructuring if it does happen. Sycamore’s expertise is primarily in retail, so it’s likely Walgreens would sell off some of its more healthcare-focused assets, Andrews told Healthcare Brew.
Walgreens executives have previously said they’re considering selling primary care chain VillageMD amid financial struggles. Andrews projected that Walgreens would also divest Shields Health Solutions, its specialty pharmacy subsidiary, and “go back to being a true retail-focused business.”
Strategy pivot. Instead of investing in its subsidiaries, Walgreens would likely focus on getting its retail pharmacy business “back on track,” Leventhal projected.
That could include further downsizing Walgreens’s pharmacy footprint beyond the 1,200 closures already announced, he said.
“The private equity firm is going to probably come in and say, ‘We’re going to close every unprofitable store,’” Leventhal said. Walgreens CEO Tim Wentworth said in October that around 6,000 of the chain’s roughly 8,600 stores are profitable.
“I think you’re going to see a lot of people in certain areas of the country have to choose another pharmacy to get their prescription medication,” Leventhal said.
The bigger picture. This probably isn’t the start of a trend of PE firms buying up retail pharmacy chains, according to Leventhal.
But it may be the “beginning of a shake-up in retail pharmacy,” Geoffrey Joyce, director of health policy at the University of Southern California’s Schaeffer Center, said.
“The traditional retail pharmacy has become a lower-margin business, and they’re going to have to adapt and be more streamlined,” Joyce projected. “We’re going to see significant contraction over time.”