If Walgreens Sells To Private Equity, Deal May Join Others Under Fire

Walgreens Boots Alliance Considers Sale to Private Equity Firm

Earlier this week, a report emerged that Walgreens is considering a sale to private equity firm Sycamore Partners. If the speculation turns into reality, the deal could put the iconic drugstore chain and its thousands of pharmacies and healthcare services under private equity ownership.

The healthcare sector has been ripe for consolidation and sales to private equity in particular have drawn regulatory scrutiny from members of Congress, federal antitrust agencies and state attorneys general.

Influential U.S. Senators earlier this year launched investigations into private equity’s increasing role in owning and operating everything from hospitals and health systems to physician practices and clinics.

Regulatory Scrutiny and Concerns

Take a May letter to Ascension Illinois, a not-for-profit operator of 10 hospitals in the Chicago area, from Sen. Chuck Grassley. The Iowa Republican and senior member of the Senate Finance Committee said he wants to know how private equity is impacting patients, healthcare quality, and outcomes.

Grassley’s investigation comes amid expanding probes by Congressional committees that include an investigation by U.S. Sen. Ed Markey, a Democrat from Massachusetts and chair of the Senate’s Primary Health and Retirement Security subcommittee, who has zeroed in on the hundreds of billions spent by private equity snapping up physician practices, hospitals, labs, and nursing homes across the country.

Critics of private equity’s involvement in healthcare were quick to jump on the possibility Walgreens might sell to Sycamore.

“Private equity has invested over $1 trillion in the U.S. healthcare sector over the last decade, and touches virtually every corner of the industry,” the group, Private Equity Stakeholder Project, said Wednesday in regard to the possible private equity takeover of Walgreens. “This is despite the fact that private equity investment in healthcare companies carries substantial risk to patients, workers, and investors. The typical private equity investment playbook may lead to behavior that jeopardizes patient care and increases bankruptcy risk.”

Potential Impact of the Sale

Sycamore Partners specializes in “retail and consumer investments,” according to the company’s website. The Wall Street Journal report indicated other partners may be needed to take over Walgreens given the company’s size, owning more than 12,000 drugstores in the U.S., Europe, and Latin America.

For its part, other reports after the potential Sycamore buyout emerged predicted a new private equity owner would “aggressively cut costs” including job cuts and store closures.

But Walgreens has already launched a major cost-cutting plan and has been closing hundreds of stores. In October, Walgreens said it will close 1,200 stores over three years in an effort to return to profitability and long-term growth.

Meanwhile, it remains unclear if Walgreens will even sell to private equity and a company spokesman declined to comment on “rumors/speculation.”

“While we believe a PE takeover of WBA is possible, given that the company would have additional flexibility to address operational headwinds in the private market coupled with deal-friendly covenants that could allow the acquirer to assume WBA’s current debt, we also do not believe a deal is a slam-dunk,” Mizuho Americas healthcare analyst Ann Hynes wrote in a research note Wednesday.