IB Insights

By

Matthew Deighton

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Sycamore Partners $23.7 Billion Acquisition: Taking Walgreens Boots Alliance Private

In one of the largest private equity deals of the year, Sycamore Partners has agreed to acquire Walgreens Boots Alliance (WBA) for up to $23.7 billion, ending the pharmacy giant’s 97-year run as a public company.

The acquisition marks one of the most ambitious attempts to revitalise a struggling retail pharmacy giant in recent years. The deal comes at a pivotal time for the retail pharmacy sector, which is grappling with declining profit margins, competition from e-commerce, and the growing influence of pharmacy benefit managers. Sycamore, known for its expertise in retail turnarounds, aims to take WBA private, streamline operations, and unlock value from its healthcare ventures.

The Deal at a Glance

  • Total Value: Up to $23.7 billion, including $11.45 per share in cash and up to $3.00 per share from the future monetisation of WBA’s healthcare assets.
  • Premium: The $11.45 per share cash consideration represents a 29% premium to WBA’s closing share price on 9 December 2024.
  • Financing: Sycamore has secured over $10 billion in debt financing from banks and private credit lenders, including JPMorgan Chase, Goldman Sachs, and Ares Management.
  • Go-Shop Period: WBA has a 35-day window to seek alternative acquisition proposals, though a superior offer is unlikely.
  • Privatisation: Upon closing, WBA will become a private company, marking the end of its nearly century-long presence on public markets.

Why Sycamore is Betting Big on WBA

1. A Classic Leveraged Buyout (LBO)

This deal is a textbook example of a leveraged buyout. Sycamore is using over $10 billion in debt—secured against WBA’s assets, including its inventory—to finance the acquisition. The goal is to improve WBA’s operational performance through cost−cutting, asset monetisation, and strategic repositioning. WBA’s market value has plummeted from over $100 billion in 2014 to less than $10 billion in 2024, making it a prime candidate for an LBO.

2. Retail Turnaround Expertise

Sycamore Partners has a proven track record of revitalising struggling retail businesses. Its acquisition of Staples, another retail giant facing e-commerce pressures, provides a blueprint for what it might do with WBA. Sycamore’s hands-on approach could help WBA streamline its store network, reduce costs, and improve profitability.

3. Unlocking Value in Healthcare

WBA’s investments in healthcare, particularly through VillageMD and Summit Health-CityMD, present a significant opportunity for Sycamore. By monetising these assets, Sycamore can generate additional cash flow while refocusing on WBA’s core retail pharmacy business. The deal includes DAP Rights, which entitle shareholders to a share of future profits from WBA’s healthcare ventures.

4. Privatisation for Strategic Flexibility

As a private company, WBA will have greater flexibility to execute its turnaround plan without the scrutiny of public markets. This includes making tough decisions on store closures, cost-cutting, and strategic investments that may be challenging to implement as a public entity. However, these changes could also impact thousands of employees and the communities they serve, raising questions about the human cost of the deal.

How the Deal is Structured: A Deep Dive into Financing

The $23.7 billion acquisition is being financed through a combination of debt and equity, with Sycamore securing over $10 billion in debt financing from a consortium of banks and private credit lenders.

Debt Financing

The debt portion of the deal is being provided by a mix of traditional banks and private credit lenders, reflecting the complexity and scale of the transaction. Key players include:

  • JPMorgan Chase: Acting as a lead financial advisor, JPMorgan is providing a significant portion of the debt financing.
  • Goldman Sachs: Another lead financial advisor, contributing to the debt package.
  • Ares Management: A major player in the private credit space, providing a portion of the debt.
  • HPS Investment Partners: Another private credit lender, diversifying the sources of debt.
  • Citi and Wells Fargo: Also involved as financial advisors, contributing to the debt financing.

The debt is structured across WBA’s three main business units, with the troubled U.S. retail business requiring secured debt against inventory, including prescription drugs. This asset-backed financing is a common feature of LBOs, providing lenders with additional security while allowing the acquirer to maximise leverage.

Equity Investment

In addition to the debt financing, Sycamore is contributing equity to fund the acquisition. WBA’s Executive Chairman, Stefano Pessina, is reinvesting his cash consideration to maintain a significant minority stake in the business. Pessina, who owns approximately 17% of WBA’s shares, will also receive DAP Rights, aligning his interests with those of other shareholders.

Advisors to the Deal

The transaction has drawn on the expertise of several top-tier advisory firms:

For WBA

  • Financial Advisors: Centerview Partners and Morgan Stanley & Co. LLC acted as financial advisors, with Morgan Stanley providing a fairness opinion to the WBA Board of Directors.
  • Legal Advisors: Kirkland & Ellis LLP served as legal advisor, while Ropes & Gray LLP acted as healthcare regulatory counsel.

For Sycamore Partners

  • Financial Advisors: UBS Investment Bank acted as lead financial advisor, with Goldman Sachs and J.P. Morgan serving as co-lead financial advisors. Citi and Wells Fargo also provided financial advisory services.
  • Legal Advisors: Davis, Polk & Wardwell LLP acted as legal counsel, while Bass Berry & Sims PLC provided healthcare regulatory advice.

For Stefano Pessina

  • Legal Advisor: Debevoise & Plimpton LLP acted as legal advisor to WBA’s Executive Chairman, Stefano Pessina.

What’s Next for WBA?

The acquisition process involves several key steps:

  • Regulatory Approvals: The deal is subject to customary closing conditions, including regulatory approvals and shareholder consent.
  • Go-Shop Period: WBA has a 35-day window to solicit alternative proposals, though no superior offers are expected.
  • Closing: The transaction is expected to close in the fourth quarter of 2025, at which point WBA will become a private company.

The Bigger Picture: What This Means for Retail Pharmacy

The Sycamore-Walgreens deal is more than just a transaction—it’s a reflection of the broader trends shaping the retail pharmacy and healthcare industries:

  • Consolidation is Key: As traditional retail pharmacies face increasing pressure from e-commerce and healthcare disruptors, consolidation is becoming a strategic imperative.
  • Healthcare Integration: The integration of healthcare services, such as primary care and urgent care, into retail pharmacy models is a growing trend. Companies that can successfully blend retail and healthcare offerings will have a competitive edge.
  • Privatisation as a Strategy: For struggling public companies, privatisation offers a path to operational flexibility and long-term value creation. Sycamore’s acquisition of WBA is a prime example of this trend.

Why This Deal Matters for Investment Banking

For aspiring investment bankers, this deal is a case study in private equity strategy and leveraged buyouts (LBOs). Here’s why it’s relevant:

  1. Leveraged Buyouts (LBOs) in Action: This deal highlights the mechanics of LBOs, from debt syndication to equity reinvestment.
  2. Private Equity’s Role in Turnarounds: Sycamore’s approach underscores the importance of identifying and valuing turnaround opportunities.
  3. Financing Complexity: The deal’s structure demonstrates the importance of balancing debt and equity to align interests and ensure deal success.

Final Thoughts

The Sycamore Partners acquisition of Walgreens Boots Alliance is more than just a transaction—it’s a pivotal moment in the evolution of retail pharmacy and healthcare. For Sycamore, the deal is a high-stakes wager on the potential to transform a struggling industry leader, using its proven playbook for retail turnarounds to drive operational improvements and unlock hidden value. For WBA, it’s an opportunity to shed the constraints of public markets and focus on long-term growth under private ownership.

However, Sycamore’s ambitious plan is not without risks. The firm will need to navigate significant challenges, including integrating WBA’s healthcare assets, managing its substantial debt obligations, and competing with disruptors like Amazon Pharmacy. If successful, this deal could inspire further consolidation in the sector, as traditional players seek to adapt to a rapidly evolving landscape.

From an investment banking perspective, this deal is a masterclass in leveraged buyouts (LBOs) and private equity strategy. It highlights the importance of structuring complex financings, aligning stakeholder interests, and navigating the challenges of a rapidly changing industry. For professionals in the field, it’s a reminder that successful deals require not just financial acumen, but also a deep understanding of industry dynamics and the ability to execute with precision.

As the retail pharmacy sector continues to face headwinds—from e-commerce disruption to shifting healthcare models—this acquisition signals a new chapter for WBA. It’s a story of resilience, reinvention, and the relentless pursuit of value. For Sycamore, the stakes are high, but so too are the potential rewards. If successful, this deal could cement Sycamore’s reputation as a leader in retail turnarounds and set a new benchmark for private equity in the healthcare space.

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