The pharmacy chain operator is reportedly mulling selling itself to an unexpected buyer in the hopes of stabilizing.
The retail pharmacy landscape could be in for a shake-up with one of its giants potentially ceding control to private equity.
As it struggles to turn around its financial troubles, Walgreens is weighing a sale to Sycamore Partners that could close in early 2025, according to a report from the Wall Street Journal, which cited people familiar with the discussions.
The move would likely drastically alter Walgreens' portfolio, with the private equity firm expected to sell off parts of the business or work with partners if a deal is completed, the report stated.
New York-based Sycamore focuses on consumer and retail investments. Aside from its purchase of office supplier Staples for almost $7 billion in 2017, the firm has also invested in retail brands like Hot Topic, Aeropostale, and Ann Taylor.
Although Walgreens would be a big bet and foray into healthcare for Sycamore, the acquisition may prove to be a worthwhile buy-low with the pharmacy chain's market value sitting under $8 billion after exceeding $100 billion in 2015.
Retail healthcare, however, has been become an unforgiving space as major players like Walgreens and CVS Health deal with diminishing reimbursement on the pharmacy side and consumer demand constricted by e-commerce.
Still, Walgreens is committing to its core retail pharmacy business and veering away from its primary and speciality care offerings, including VillageMD, which have failed to generate profit.
The company announced earlier this year that it would close 160 VillageMD clinics and reported nearly $6 billion in net loss from the investment for the second quarter.
By divesting VillageMD following a sale, Sycamore may recoup some value due to the primary care provider potentially functioning better as a standalone business.
The firm could also be pursuing the acquisition with the sense that there will be more regulation around pharmacy benefit managers, creating better margins for pharmacies like Walgreens. A bipartisan group of legislators have introduced the PBM Act in the Senate, seeking to require PBMs to sell any pharmacies they own.
If Sycamore isn't interested in turning around Walgreens' pharmacy business, it could opt to focus its efforts on leveraging the company's retail footprint. While Walgreens said it would close 1,200 stores in the next three years, Sycamore's investing experience and knowledge in retail may allow it to squeeze out more profit.
For fiscal year 2024, Walgreens suffered $8.6 million in net losses, compared to a $3.1 million loss in 2023.
With no clear path to improved financial viability at the moment, incurring significant changes as privately-owned company could be the push that Walgreens needs.
Jay Asser is the CEO editor for HealthLeaders.
KEY TAKEAWAYS
Walgreens is considering a sale to private equity firm Sycamore Partners after its market value plummeted from $100 billion in 2015 to around $7.5 billion now, the Wall Street Journal reported.
Sycamore has no healthcare investments but is strongly familiar with retail businesses, which could be where it focuses its attention following an acquisition of Walgreens.
The retail pharmacy sector is dealing with low reimbursement, but increased regulatory pressure on pharmacy benefit managers may alleviate that.