Sycamore Partners’ $10 Billion Prescription For Walgreens

Walgreens Boots Alliance (WBA) announced it will go private in a $10 billion deal with Sycamore Partners. It comes at a crucial time for Walgreens, which faces declining sales, profitability issues, and scrutiny for its role in the opioid crisis. The formation of WBA in 2014 was intended to deliver a wider range of products and services globally and become a leading player in the international healthcare retail industry.

Signs of large strategic shifts in the retail healthcare space emerged late last year, which Forrester analyzed in a CX Cast episode. Recently, WBA announced, among other measures, the closure of more than 1,200 stores and a pivot to expand its specialty pharmacy business.

Reimagining The Corner Store: What Walgreens Looks Like Post-Deal

Sycamore plans to retain Walgreens’ core retail operations while selling off or taking public other parts of the company. WBA CEO Tim Wentworth notes that going private will enable the company to “realize [its] goal of being the first choice for pharmacy, retail, and health services.” After the split, the company will be divided into three distinct units:

1. US Retail Pharmacy. This unit will focus on Walgreens’ core retail pharmacy operations in the US, which currently includes approximately 8,500 stores. As US consumers rank location as the top attribute for why they choose a pharmacy, it will be imperative for Walgreens to strategically manage any future location closures.
2. Shields Health Solutions. This unit will handle Walgreens’ specialty pharmacy operations, addressing the rapidly growing demand for specialty drugs for chronic conditions such as cystic fibrosis and hepatitis. In recent years, specialty drugs have accounted for more than half of the total prescription spending managed by any health plan, employer, or government health program.
3. Boots. UK-based Boots includes 3,364 retail pharmacies and health and beauty stores in the UK, Mexico, Thailand, and the Republic of Ireland. As the UK has experienced some store closures, the company could potentially close more locations as part of the broader strategy to streamline operations and focus on profitability.

In the US market, competitors Amazon and CVS Health are continuing to differentiate themselves. Amazon’s RxPass addresses price transparency, affordability, and convenience, offering Prime members eligible (“50+ commonly prescribed”) medications at home for a flat fee of $5 per month. CVS diversified through deeper vertical integration of insurance and pharmacy benefits and launched CVS CostVantage to lower prescription costs. A smaller footprint will require Walgreens to accelerate its digital transformation and improve CX if it is going to retain current customers and lure new customers away from these competitors. To win with customers, it will also have to enhance and build services that increase convenience and promote price transparency.

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