Analyst Predicts Sycamore to Strip Assets, Close Stores at Walgreens
Plus: We introduce Portco News and outline portco M&A and exits from last week.
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By now, we all know the low-down. Sycamore Partners, a consumer-focused private equity firm that has mainly been active in the fashion retail space, has agreed to take the Walgreens Boots Alliance private in a deal valued at approximately $23.7 billion, including debt.
Shareholders will receive $11.45 in cash per share, an 8% premium over the company's March 6th closing price, and could potentially receive another $3 per share if certain assets are successfully divested.
The deal is expected to close in Q4 of this year.
The tradeoff.
Brian Tanquilut, managing director of healthcare services equity research at Jeffries and one of 19 analysts who cover the Walgreens Boots Alliance stock, says that while he views the take-private as “the right move” for Walgreens and its shareholders, he still has reservations.
“[The acquisition] was still a little bit of a surprise for [my peers and I] because it's not an easy asset to turn around. It has some structural and fundamental challenges,” he said. “I think Sycamore is undertaking a fairly tough turnaround here.”
One way for Sycamore to run a quick financial turnaround, Tanquilut predicts, is through downsizing.
“[Sycamore Partners] will probably close more stores, figure out how to get out of leases, and then that way you're eliminating some of the underperformance in that retail pharmacy side of the business. So once you do that, in theory, you can shore up earnings and cash flow, and maybe that helps turn this thing around over time,” he explained.
With store closures will likely come layoffs, of course.
Sell out.
Tanquilut also predicts that the Sycamore deal will force Walgreens to sell many of its assets, but this may be done more so to fund the debts associated with the take-private.
“It's about disposing assets that are embedded in the company that are undervalued,” he said. “Obviously there's a bunch of debt [involved in the take private], so that would help from that perspective.”
Tanquilut predicted the following assets could face sale under Sycamore’s stewardship:
Cencora: a publicly traded global drug distributor that Walgreens maintains a six percent stake in.
Village MD (including its City MD and Summit Health subsidiaries): a poor-performing health conglomerate Walgreens has owned since 2020 and has been trying to sell since early this year.
Shields Health: a specialty pharmacy business Walgreens acquired in 2021 and is also trying to sell.
CareCentrix: an in-home care solutions provider Walgreens bought a 55 percent stake in for $330 million in 2022.
Tanquilut believes that the deal with Sycamore affords Walgreens more time to find a suitable buyer for these assets, rather than having to sell them in a “fire sale situation” right now.
Sickle-more.
Sycamore is no stranger to asset stripping. It’s a tactic they’ve employed at many portcos, including Staples, Hot Topic, Torrid, and The Limited, to varying degrees of financial success. One controversial example of this was the firm’s acquisition of Jones Group, which it acquired in 2014 for $1.2 billion.
After loading up the company with debt, Sycamore sold off several of its brands — including Jones New York, Stuart Weitzman, Kurt Geiger, and Easy Spirit — making large profits. Jones Group then became Nine West Holdings, its lone surviving brand, which struggled as Sycamore closed nearly all Nine West stores and shut down the Anne Klein e-commerce site. Sycamore Partners wrote down the investment, much to the chagrin of the portco’s bondholders.
One thing Sycamore Partners has no experience with, however, is purveying controlled substances. Most of its acquisitions in the past have been in fashion retail, with a few restaurant-based acquisitions.
Tanquilut doesn’t think this will be an issue, given that the most difficult part of owning and operating a pharmacy is the supply chain — something that Walgreens has handled through its special partnership with Cencora, the very same global drug distributor that Walgreens may sell its stake in.
Despite this, Tanquilut doesn’t think Walgreens’ overall partnership with Cencora is at risk, stating that “the partnership will hold whether or not [Walgreens] owns the stock”.
Sycamore Partners did not respond to request for comment.
PE portcos also saw some full and partial exits last week, as well as some exits-to-be:
BC Partners agreed to sell its majority stake in the security firm GardaWorld to a consortium including current GardaWorld founder and CEO Stephan Cretier, HPS Investment Partners, Oak Hill Advisors, One Investment Management, and other company executives for C$13.5 billion ($9.34 billion). BC Partners originally acquired GardaWorld in 2009 — becoming the controlling shareholder in 2014 — and will retain a minority interest in the asset post-transaction.
Sterling Group finalized the sale of Frontline Road Safety, a pavement marking service provider it has held since 2016, to Bain Capital for an undisclosed amount.
After years of restructuring the asset, KKR reached an agreement to sell its controlling stake in the Japanese supermarket chain Seiyu to Japanese retailer Trial Holdings. The deal values Seiyu at approximately ¥170 billion ($1.15 billion). KKR acquired a majority stake in the asset in 2008 via a partnership with Walmart, securing full control in 2018.
The Financial Times acquired Invisso, a live events company, from private equity firm Epiris via its portfolio company Delinian (formerly Euromoney, which it acquired in 2022) for an unknown sum.
Francisco Partners agreed to acquire energy software solutions provider Quorum Software from Thoma Bravo. Financial terms were not disclosed. Thoma Bravo has owned Quorum since 2018.
Warburg Pincus sold Sundyne, a heat pump and gas compressor manufacturer, to Honeywell for $2.2 billion in cash, representing a 14.5x EBITDA. WP bought the asset from BC Partners and the Carlyle Group for an undisclosed amount in 2020.
Clearlake Capital bought ModMed, a healthcare SaaS company, from Warburg Pincus for an undisclosed amount. WP acquired ModMed in 2017 and unsuccessfully tried to sell it in 2022.
Equistone sold TIMETOACT Group, a German IT services provider, to H.I.G. Capital for an unknown sum. Equistone initially acquired the asset in 2021.
Meanwhile, portco M&A was in full swing:
Thoma Bravo-backed USU, an IT services solutions provider, acquired management software provider SaaSmetrix for an undisclosed amount.
Another Thoma Bravo portco, Flexera, bought Spot (a FinOps portfolio owned by NetApp) for an unknown sum.
Adevinta, owned by Blackstone and Permira, neared finalizing a deal to sell its stake in the Austrian digital marketplace Willhaben, an Austrian digital marketplace, to joint venture partner Styria Media Group, its partner in the venture, alongside European growth investor Sprints. The transaction will likely be valued at approximately €500 million ($519 million).
KKR’s medical device platform Ajax Health collaborated with Boston Scientific to launch FlowMod, a new company that will seek to accelerate clinical validation and regulatory approval for heart failure treatments. The company will be led by Dr. Philippe Marco, former president and chief operations officer of Ajax-led companies Epix Therapeutics and CV Ingenuity.
And there were some key people moves:
Charlesbank Capital Partners appointed Michael Treisman, formerly in-house counsel at Bain Capital, to be its next general counsel and chief compliance officer. He replaces Jerome McCluskey, who left Charlesbank to become a partner at Latham & Watkins last month.
AE Industrial Partners hired ex-CIA cyber intelligence director Andrew G. Boyd as an operating partner for its aerospace, defense, and industrial portfolio.
Leeds Equity Partners brought on Andrew Hermalyn as an operating partner for its education portfolio. Hermalyn has 20 years of experience in the education industry, 17 of which were spent at the online education company he founded, 2U, Inc.
Finally, don’t say we didn’t warn you — the FTC remains unfriendly to PE-backed healthcare, even without Lina Khan at the helm:
The FTC sued to block GTCR's $627 million acquisition of medical device coatings manufacturer Surmodics. The FTC’s main concern is that GTCR owns Biocoat, which, combined with Surmodics, constitutes over 50 percent of the hydrophilic coatings market. Surmodics plans to defend the deal in court.
CORRECTION: An earlier version of this newsletter claimed that Walgreens held a 10 percent equity stake in Cencora. That was an outdated figure. The correct figure, as of February 6, 2025, is six percent.
See you next week!