Sycamore Partners Preps Brutal Amputation After Walgreens Overdose...

So here’s something I definitely didn’t have on my 2024 bingo card: Word on the street is that Sycamore Partners—the private equity firm best known for buying struggling retailers and flipping them like foreclosed McMansions—is eyeing Walgreens for a buyout. 

(Source: Reuters) 

Interesting, more details please…

In short, we all know Walgreens has experienced a seismic fall from grace over the years. For instance, back in its prime—2015 to be exact—the company was floating on cloud nine with a $100 billion valuation. Fast forward to today, and that number has free-fallen to a measly $8 billion. That’s an 8% markdown for every year since its peak. Throw in an $8 billion pile of long-term debt, and you’ve got a deal that screams “high risk, higher headache.”

(Source: CNN) 

And yet, Walgreens stock popped nearly 23% on the news of a potential privatization. Why? Investors are probably just relieved someone might have a plan for this flailing giant. It's kind of like the entire North Carolina football fanbase right now as good ol’ Billy Belichick is taking the helm (Mack Brown can kick rocks)---you’re not sure it’ll work, but at least something’s happening.

Especially when you factor in the death spiral the company has been faced with. Falling reimbursement rates have crushed its pharmacy margins. Inflation and Amazon’s retail invasion have battered its stores. And the COVID-fueled demand for hand sanitizer and toilet paper? That ship sailed in 2021.

(Source: Giphy) 

But, but, but… what’s interesting here is that Sycamore Partners specializes in buying struggling retailers (see: Hot Topic, Ann Taylor) and gutting them into profitability. But Walgreens? That’s a whole different beast. We’re not talking about some niche mall brand here. Walgreens is a sprawling, bloated Frankenstein of U.S. pharmacies and the UK-based Boots chain—an operation so big it feels more like a government agency than a retail business.

Meaning, if Sycamore bites, you can expect a complete total recall. For more context, one of the things that will most likely happen immediately is putting Boots up for sale. Walgreens has been trying to offload its UK-based Boots chain for years, so it’s highly likely that Sycamore will speed up that process.  In addition, expect far more store’s getting the axe, while Sycamore focuses on profitability—a.k.a. The stuff that actually works like pharmacies and retail operations that still turn a decent margin. 

(Source: PYMTS) 

Now with that said, if this all feels eerily familiar, it’s because Walgreens already flirted with the idea of going private back in 2019. KKR dangled a $70 billion buyout offer, but the deal died faster than most had hoped for. Which is why now, with its valuation in the bargain bin, Walgreens looks like an easier target for Sycamore.

But even still, if Sycamore takes this on, they’re not in for a quick flip. Walgreens is a massive entity with more baggage than a Kardashian on a weekend trip. The turnaround will take years, not quarters, and it’s going to require some serious creativity. Meaning, if Sycamore pulls this off, expect a leaner, meaner Walgreens to emerge—one that’s probably half the size but twice as focused. But if they fail? Well, Walgreens might just end up as another cautionary tale in the retail apocalypse.

(Source: Giphy) 

In the meantime though, if you’re a shareholder in Walgreens or you’re watching from the sidelines, filter this through a brain-cell and place your bets accordingly, friends. As always, stay safe and stay frosty! Until next time…

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Stocks.News does not hold positions in companies mentioned in the article.