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- 💊Walgreens Buyout: Sycamore's Next Bold Move
💊Walgreens Buyout: Sycamore's Next Bold Move
Deep dive into Walgreens breakup scenario
PE Playbook: Walgreens buyout by Sycamore
State of Play
Sycamore Partners, a New York-based private equity firm, is acquiring Walgreens for $11.45 per share in cash, plus an additional right to receive up to $3.00 per share from the planned divestiture of VillageMD (announced midway through this write-up!). This values Walgreens at an enterprise value of approximately $23.7 billion*, implying an EV/EBITDA multiple of ~5.6x**. Excluding the contingent $3.00 per share from divestitures, the deal is valued at ~$21 billion***, translating to an EV/EBITDA multiple of ~4.8x****.
Walgreens has historically been a gift to private equity—at the expense of its own shareholders. The 2014 acquisition of Alliance Boots generated ~4x MOIC for KKR, while the 2010 sale of Duane Reade netted Oak Hill a ~1.5x return. Since its 2015 peak, Walgreens’ market cap has plummeted from $100 billion to under $10 billion, as the result of a series of strategic missteps.
So what exactly does Sycamore see in Walgreens? In short—financial engineering. And if there’s any firm positioned to pull it off, it’s Sycamore.
—Footnotes:
*Per Walgreens’ announcement, based on cash consideration of $11.45 per share, plus up to $3.00 per share from divestiture rights, plus net debt, capital leases, present value of opioid liability and Everly settlement, less fair value of all equity investments.
**Based on $4.2B LTM Adj. EBITDA per Q1 2025 filings.
***Calculated as $23.7B total enterprise value, less $2.7B maximum proceeds from divestiture rights.
****Calculated as $4.2B consolidated LTM Adj. EBITDA per Q1 2025 filings, plus $141M CY2024A Adj. EBITDA loss from VillageMD.
How Walgreens Makes Money
Before diving into what happened to Walgreens over the last few years and why Sycamore is interested, let’s first break down their three core revenue segments:
🇺🇸💊 1. U.S. Retail Pharmacy Segment (FY2024: $116 billion revenue)
Prescription Drug Sales (~77% of segment) – Walgreens fills over 1.2 billion prescriptions annually, making money through insurance reimbursements, co-pays, and cash purchases. Prescription drugs are low-margin, high-volume products.
Retail & Front-End Sales (~23% of segment) – Walgreens sells OTC medications, beauty, personal care, and convenience goods. Private-label products (e.g., Walgreens-branded vitamins) have higher margins than branded goods.
🇬🇧⚕️ 2. International Segment (FY2024: $24 billion revenue)
Boots Pharmacy & Retail Chain (~49% of segment) – The largest retail pharmacy chain in the UK, Boots earns money from prescription dispensing and health/beauty product sales. Beauty products generate higher margins than traditional pharmacy items.
Wholesale Distribution (~51% of segment) – Walgreens still operates some wholesale pharmaceutical distribution businesses, primarily in Germany.
🏥 3. U.S. Healthcare (FY2024: $8 billion revenue)
Primary Care Clinics (75% of segment) – Walgreens operates VillageMD and CityMD urgent care clinics, generating revenue from doctor visits, chronic disease management, and value-based care contracts.
Specialty Pharmacy aka Shields Health Solutions (7% of segment) – Shields partners with hospitals to provide specialty medications for complex conditions. This is a high-growth, high-margin business.
Home Healthcare aka CareCentrix (17% of segment) – CareCentrix manages home-based healthcare services like post-hospital care, durable medical equipment (DME), and home infusions. Revenue comes from insurance reimbursements.
Company History
All three major pharmacy retailers—CVS, Walgreens, and Rite Aid—have faced mounting industry headwinds, from the rise of e-commerce to declining pharmacy reimbursement rates. However, over the past five years, their strategic choices have led to vastly different outcomes: CVS has maintained (relative) stability, Walgreens has suffered a steep decline in value, and Rite Aid has collapsed into bankruptcy.
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