Walgreens Go Private? Why It Might Be the Right Move for them and Sycamore Partners

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The retail pharmacy landscape has undergone seismic shifts over the past few years, eroding the once-stable margins that kept giants like Walgreens Boots Alliance (WBA) profitable. With the slowdown of COVID-19 vaccine and testing-related revenues over the past 18 months, combined with increasing pressures from PBMs, mail-order pharmacies, and disruptors like Amazon and Cost Plus Drugs, the retail pharmacy model is under significant strain.

Walgreens, a pillar of U.S. pharmacy retail, has seen its stock plummet to its lowest price since the late 1990s. Rite Aid’s recent bankruptcy further highlights the existential challenges facing the industry. Amid this turmoil, a bold idea is circulating: taking Walgreens private.

The Case for Taking Walgreens Private

Enter Sycamore Partners, a New York-based private equity firm specializing in retail and consumer investments. Sycamore hasn’t done a large deal in quite a bit according to the WSJ article but acquiring Walgreens could be a reasonable acquisition and next step. With WBA’s current market cap (prior to this news) hovering around $7 billion, Sycamore could potentially acquire the company with a 30% premium, bringing the total deal price to roughly $9–10 billion.

The rationale for this move to private lies in the significant margin compression in the retail pharmacy business. Over the past few years, Walgreens has faced:

1. Lower PBM Reimbursements: Major PBMs are steering patients toward their own mail-order pharmacies, offering lower costs and 90 day prescriptions to move to their mail-order pharmacies.

2. Generic Market Disruption: Players like Amazon and Cost Plus Drugs are undercutting traditional pharmacy prices, particularly for generics which are historically high margin (low top line).

3. Shift in Pharmacy Product Sales: Once-lucrative pharmacy goods are increasingly being sold by Amazon and other online retailers.

4. Retail Challenges: Sluggish sales in non-pharmacy retail categories and reliance on low-margin branded medications have made it harder to offset these losses.

What Would Sycamore Do?