Last week, Boots’ parent company Walgreens was acquired in a $10bn mega deal by private equity firm Sycamore Partners. Who are the brand’s new owners and where does the UK institution fit into its plans?
After months and years of speculation, one of the longest-running stories in retail was put to bed — at least for the time being. US-based private equity house Sycamore Partners announced it had agreed a deal to snap up health and beauty giant Walgreens Boots Alliance (WBA) last week.
Sycamore Partners, and its secretive co-founder Stefan Kaluzny, have a reputation in the US for buying low and making aggressive moves to achieve returns on its investment quickly—often by breaking up large businesses or selling off real estate to generate immediate cash proceeds.
The best example of that modus operandi was when Sycamore bought office supplies business Staples for $6.9bn in 2017. Sycamore almost immediately implemented a restructuring, splitting Staples into three “independently managed and capitalised entities” and selling off the company’s headquarters.
In 2019, Sycamore refinanced over $5bn of debt resulting in a $1bn dividend after less than two years of ownership.
One source with an understanding of how Sycamore likes to operate said it is “not afraid to do the hard yards” and wouldn’t hesitate to split up WBA, shutter stores, slash jobs, or even liquidate whole parts of the business to generate a quick return.
The Walgreen Boots Alliance’s recent performance has put it firmly in Sycamore’s sights. The giant’s stock market valuation has been in free fall over the last few years, while the brand has been busily slashing costs, including gutting the Rite Aid brand’s store estate.
“Boots has consistently outperformed its parent company in retail execution, growing sales and modernising its offer while Walgreens has struggled”
Josh Holmes, head of research at Retail Economics
The Staples example may be extremely pertinent here, because the deal to acquire WBA seems to also have been struck with a future tripartite structure in mind. While the initial deal was done for the entire business, experts say Sycamore will look to break up WBA into three: with the US Walgreens business, UK-based Boots, and speciality pharma unit Shields Health Solutions all possibly being separated in future.
While some experts have said a potential split of the businesses would allow Sycamore to better allocate investment, others wonder whether there’ll be any investment in Boots at all.
“This deal marks a major shift for Walgreens Boots Alliance and the big question now is what happens to Boots,” says Josh Holmes, head of research at Retail Economics. “Boots has consistently outperformed its parent company in retail execution, growing sales and modernising its offer while Walgreens has struggled.
“It is an incredibly strong and trusted brand in the UK, and while Sycamore Partners will want to extract value, it is unlikely to be a long-term strategic fit. A sale or spin-off looks like the most probable outcome, especially as Sycamore will want to focus on Walgreens’ U.S. business.
The banker agrees. “You look at the retail businesses Sycamore owns currently, and its previous track record on investments,” he added. “Hot Topic, Ann Taylor, Lane Bryant, Staples. None of them have UK stores. They are all very US and Canada-focused.
“You can already see with the way the deal has been structured, they’ll likely look to parcel Boots off to make it easier to jettison it. Whether that’s by finding a UK-based buyer or maybe helping facilitate a separate float, who knows? But I can’t see Sycamore holding on to Boots for too long. It’s not a market they [the UK] specialise in.”
Boots on its own two feet
One former Boots staffer believes the retailer may be better off on its own and that the senior team has long seen its future away from Walgreens.
“Boots is a really good business and is doing well in the UK,” he says. “But Walgreens has always found properly investing in it very difficult to do.
“We were very excited then [2022, when Boots was first put up for sale] about the idea of new ownership because we believed they would make the right, sensible investments in the store base and the rest of the business to drive growth”.
However, that sale never emerged, and nor did any extra funding from WBA. In fact, WBA’s relentless focus on cash flow meant that despite Boots’ performance, it was still hell-bent on cost-cutting.
In 2024, WBA shuttered 300 Boots stores in a bid to slash the store estate to around 1,900 from a previous high in excess of 2,200.
The former staffer says that a fresh start for Boots would be the best thing for it. Jefferies healthcare analyst Brian Tanquilut agrees, saying he sees “value in Boots that’s not being unlocked” due to its place in the WBA, an enterprise he says “is struggling”.
Retail Economics’ Holmes says Sycamore wouldn’t struggle to generate interest in Boots if it were to put it up for sale. However, he says that finding the right price would be the key stepping stone.
“A sale or IPO could both be possibilities, but the price tag will be key,” he says. “Previous sale attempts stalled over valuation concerns, and Sycamore will be looking to maximise its return. That may mean short-term restructuring, whether through lease renegotiations, cost efficiencies or refining the core proposition, to make Boots more attractive to buyers.”
“Boots is a really good business and is doing well in the UK, but Walgreens has always found properly investing in it very difficult to do”
As a standalone business, Boots has a number of things going in its favour. While it operates in an increasingly saturated beauty market, it remains one of the UK’s best-known and most trusted high street retailers. It also has the proprietary data of more than 17 million Boots Advantage Card users which it could commercialise more effectively.
People close to the business have also spent years, if not decades, working out how the retailer can work closer with the government to provide certain healthcare services that a stretched NHS doesn’t have the capacity to deliver properly.
In February, Boots chief digital officer Paula Bobbett told Retail Week the retailer was looking at how it can “continue to evolve our healthcare services”.
“We have a huge amount of data we use when we have consent, but I think the next frontier is how we use data to get better outcomes”, she said.
“For example, we did some work with Imperial College and we used our data to predict preventative ovarian cancer. I think there is a huge amount in that space where healthcare is behind in how they use that data, and I think that’s next for us to drive better outcomes.”
Of all the constituent parts of WBA, Boots may be in the best shape right now. It also has a clear strategy for future growth, seeing a push into healthcare services as a long-term opportunity. All that looks to be UK-specific, which is unlikely to be of much interest to new owners Sycamore Partners, at least in the long term.
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