Is
anyone
surprised
that
Walgreens
is
looking
to
sell
itself
—
reportedly
to
private
equity
firm
Sycamore
Partners?
Walgreens
has
been
losing
a
lot
of
greenbacks
lately:
a
whopping
$8.6
billion
of
them
in
fiscal
2024.
Its
foray
into
primary
care
has
been
a
challenge
forcing
it
to
close
a
series
of
VillageMD
clinics
nationwide.
Even
its
pharmacy
business
has
faced
competition
from
nimble,
online
pharmacy
retailers
like
Amazon
Pharmacy
and
Mark
Cuban’s
Cost
Plus
Drugs
and
fallen
casualty
to
drug
prices
being
negotiated.
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
—
it
is
currently
trading
at
less
than
$10
down
from
a
high
of
nearly
$40
at
the
end
of
2019.
So,
when
the
Wall
Street
Journal
reported
last
week
that
Deerfield,
Illinois-based
Walgreens
is
exploring
a
sale,
the
struggling
retailer’s
shares
jumped
by
about
17%
that
day.
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’s
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
report
from
Pitchbook
showed
that
the
deal
reportedly
stalled
because
KKR
and
its
prospective
financiers
couldn’t
agree
on
Walgreens’
valuation.
Given
its
diminished
status,
is
selling
to
a
private
equity
buyer
a
good
move
for
Walgreens?
The
answer
appears
to
be
“yes”
for
some
experts.
“At
this
point,
some
fresh
thinking
is
needed
to
reconceptualize
how
the
company’s
assets
can
be
more
fruitfully
employed,”
said
Michael
Abrams,
managing
partner
of
Numerof
&
Associates,
a
consulting
firm.
Walgreens
and
Sycamore
Partners
declined
to
comment.
Why
Walgreens
May
Want
to
Sell
Itself
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.
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
in
primary
care
provider
VillageMD
for
about
$5.2
billion.
“The
fact
of
the
matter
is
that
the
pharmacy
business
is
a
mature
one
with
flat
margins
in
the
core
function
of
dispensing
prescription
drugs,”
Abrams
said.
“Add
to
that
growing
pressure
from
pharmacy
benefit
managers
who
negotiate
drug
prices
on
behalf
of
insurers
and
employers,
and
Walgreens’
extraordinary
network
of
over
12,000
stores
is
less
an
asset
than
a
liability.”
He
added
that
sales
for
retail
products
have
faced
increased
competition
from
Amazon
and
other
e-commerce
sites.
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’s
merger
&
acquisition
practice.
West
Monroe
is
a
consulting
firm.
“By
closing
underperforming
locations
and
leveraging
sale-and-leaseback
transactions,
Walgreens
could
reduce
debt
and
streamline
operations,”
Campbell
said.
“Once
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.”
But
why
Sycamore
Partners?
After
all,
the
company
doesn’t
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.
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’s.
The
fact
that
Sycamore
Partners
is
more
retail-oriented
and
consumer-focused
is
interesting
to
Hal
Andrews,
president
and
CEO
of
Trilliant
Health.
He
noted
that
the
beauty
business
at
Boots
stores
in
London
is
just
as
prominent
as
the
pharmacy
business,
if
not
more.
“Boots,
from
just
an
experience
standpoint,
is
much
more
of
a
consumer
business
around
health
and
wellness
and
beauty.
…
But
healthcare
is
a
very
different
thing,”
he
said.
“The
fact
that
Sycamore
is
interested
suggests
that
they
see
an
opportunity
to
really
focus
on
the
retail
side,
the
consumer
side,
the
health
and
beauty
part
of
the
business,
and
not
so
much
on
the
healthcare
side,
whether
that’s
VillageMD
or
Shields
or
anything
else
that’s
really
hands-on
medicine
as
opposed
to
retail
health.”
Is
this
the
right
move?
At
this
point,
selling
to
a
private
equity
buyer
like
Sycamore
Partners
may
be
the
right
call
for
Walgreens,
Abrams
said.
“Walgreens
missed
the
opportunity
to
diversify
into
the
PBM
or
insurance
space
years
ago,
and
so
has
been
at
the
mercy
of
others
like
CVS
who
did,”
he
declared.
“Their
effort
to
enter
the
primary
care
space
made
sense,
but
the
company
underestimated
the
cost
and
effort
involved
in
changing
the
public’s
expectations
to
see
the
local
drug
store
as
a
care
provider.”
Another
consultant
echoed
Abrams’
comments,
noting
that
the
faltering
retail
giant
needs
to
make
a
strategic
change
in
order
to
avoid
“further
decline.”
“I
think
right
now
a
private
equity
owner
could
potentially
drive
the
needed
changes,
such
as
a
greater
focus
on
e-commerce,
rethinking
the
retail
footprint,
and
pursuing
M&A
to
expand
into
adjacent
healthcare
services,”
said
Howard
Gutman,
private
equity
strategy
and
coverage
lead
for
MorganFranklin
Consulting.
“However,
successfully
executing
this
transformation
would
require
Walgreens
to
develop
new
capabilities
around
digital
operations,
M&A
integration,
and
managing
a
more
diversified
business
model.
This
is
another
reason
I
think
the
move
towards
finding
the
right
private
equity
partner
makes
sense.”
Andrews
of
Trilliant
Health
stated
that
he
can’t
say
for
sure
whether
this
is
the
right
move
for
Walgreens.
As
an
executive,
however,
he
did
note
that
when
a
company
needs
to
restructure
a
business,
it’s
much
easier
to
do
that
when
you’re
privately
held
and
not
reporting
to
Wall
Street
every
90
days.
“It
allows
the
management
team
to
just
focus
on
the
objectives
and
not
worry
about
what
Wall
Street’s
gonna
say
every
90
days
and
whether
the
stock
is
gonna
go
up
or
down,”
he
said.
“It
allows
for
clarity,
and
clarity
allows
for
more
focus
on
executing
the
plan,
as
opposed
to
worrying
about
what
people
think
about
it.”
Although
a
private
equity
deal
seems
like
the
smart
decision
for
Walgreens
to
some,
Wright
of
Morgan
Stanley
doesn’t
seem
to
think
the
deal
will
go
through.
“While
we
acknowledge
the
context
around
a
potential
sale
in
a
challenging
pharmacy
backdrop,
a
buyout
is
harder
to
contemplate
given
its
already
sizable
debt
burden
and
paltry
cash
flow,
making
the
value
creation
pathway
harder
to
decipher,”
Wright
stated
in
the
analyst
note.
Andrews
added
that
Sycamore
Partners
may
not
be
the
only
interested
party
in
Walgreens
and
there
could
very
well
be
additional
potential
buyers
down
the
road
with
competing
offers.
“This
is
really
just
step
one,
and
it’ll
be
interesting
to
see
whether
another
private
equity
firm
steps
in,”
he
said.
Photo:
alexsl,
Getty
Images
Chris
With
Returning
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