If Walgreens Undergoes Privatization via Private Equity, Potential Deal may Face Scrutiny Alongside Similar Transactions
If Walgreens Boots Alliance proceeds with a transaction to private equity investors, the company might join other healthcare businesses under examination for giving up to such financiers.
There was a disclosure last week suggesting that Walgreens might be considering a sale to private equity firm Sycamore Partners. If this conjecture materializes, the transaction could shift the legendary drugstore chain, along with its many pharmacies and healthcare services, into private equity control.
The healthcare industry has witnessed significant consolidation and interest in private equity acquisitions, leading to scrutiny from Congress members, federal antitrust authorities, and state prosecutors.
Several prominent U.S. Senators initiated investigations into private equity's increasing influence during the first half of this year, overseeing facilities such as hospitals, healthcare systems, medical practices, and clinics.
For instance, a letter in May to Ascension Illinois, a not-for-profit operator with 10 hospitals in the Chicago region, was penned by Sen. Chuck Grassley. He expressed concerns about private equity's impact on patient care, healthcare quality, and outcomes.
Grassley's probe coincides with expanding investigations from congressional committees, such as U.S. Sen. Ed Markey's inquiry, who is a Democrat from Massachusetts and chairs the Senate's Primary Health and Retirement Security subcommittee. Markey has focused on the substantial sums private equity has spent purchasing physician practices, hospitals, labs, and nursing homes across the country, as reported by the Washington Post in May.
Critics of private equity's role in healthcare quickly voiced concerns in the wake of rumors of Walgreens potentially selling to Sycamore.
The Private Equity Stakeholder Project explained that during the last decade, private equity has invested over $1 trillion in the U.S. healthcare sector, affecting nearly every aspect of the sector. Private equity investments in healthcare companies carry substantial risk to patients, employees, and investors and may lead to practices that jeopardize patient care and raise bankruptcy risks.
Sycamore Partners specializes in "retail and consumer investments," according to the company's website.** The Wall Street Journal suggested that additional financial partners might be required to acquire Walgreens due to the company's size, as it operates over 12,000 drugstores in the U.S., Europe, and Latin America.
Reports following the potential Sycamore buyout predicted that a new private equity owner would pursue significant cost reductions, including job losses and store closures.
However, Walgreens had launched a major cost-cutting plan and announced closing 1,200 stores since October in an attempt to achieve profitability and long-term growth.
Eventually, it remains uncertain if Walgreens will even sell to private equity, as a company spokesperson declined to comment on "rumors/speculation."
"While we believe a PE takeover of WBA is feasible, considering the company would be afforded additional flexibility to face operational challenges within the private sector, along with deal-friendly covenants that could enable the acquirer to assume WBA's current debt, we also do not view a deal as a foregone conclusion," Mizuho Americas healthcare analyst Ann Hynes wrote in a research note Wednesday.
If the rumors about Walgreens considering a sale to Sycamore Partners, a private equity firm, prove to be true, then Walgreens Boots Alliance could follow other healthcare companies in being acquired by private equity investors. Sycamore Partners, known for its retail and consumer investments, could potentially require additional financial partners to acquire Walgreens due to its large scale, operating over 12,000 drugstores globally.