Sycamore Partners Seals Walgreens Deal, Carves Retailer into Five Companies
The completion of the deal brings several leadership shifts, including the immediate appointment of Mike Motz, former CEO of Staples U.S. Retail, as Walgreens’ new CEO.
Overview:
- Walgreens has officially become a private company following the closure of its $10 billion sale to private equity firm Sycamore Partners on Thursday.
- Going forward, Walgreens’ healthcare subsidiaries — Shields Health Solutions, CareCentrix, and VillageMD — will operate as independent businesses. Additionally, The Boots Group, the company’s international retail pharmacy chain, will be spun out, resulting in five standalone entities.
- Sycamore has appointed retail veteran Mike Motz as Walgreens’ new CEO, succeeding Tim Wentworth. Motz previously served as CEO of Staples U.S. Retail, a Sycamore portfolio company, and as president of Canadian pharmacy chain Shoppers Drug Mart.
Key Insight:
Speculation about Walgreens’ sale circulated for months before the deal was officially announced in March, as the company grappled with challenges in its core retail pharmacy business and saw limited returns from its pivot into healthcare services.
In July, Walgreens shareholders overwhelmingly approved the $10 billion sale to Sycamore Partners and former Walgreens CEO Stefano Pessina, following comments from then-CEO Tim Wentworth that the buyer group could bring the leadership strength needed to address the retailer’s mounting financial pressures.
Although Wentworth is stepping down as CEO, he will remain with the company as a board director. Meanwhile, John Lederer — a former Walgreens director and current senior advisor to Sycamore — has been named executive chairman.
Walgreens’ subsidiaries will continue with familiar leadership structures. CareCentrix, the company’s home health arm, will remain under CEO Steve Horowitz, while VillageMD has not yet disclosed how the acquisition may affect its leadership team.
“Today marks an exciting new chapter for Walgreens,” said newly appointed CEO Mike Motz in a Thursday statement. “As a private company, and together with our dedicated team members, we are sharpening our focus on our core pharmacy and retail platform, our stores, and our customer experience — building on the momentum already underway.”
Not all stakeholders are optimistic about the deal. In March, the Private Equity Stakeholder Project — a watchdog group monitoring the effects of private investment — expressed deep concern, pointing out that several of Sycamore’s portfolio companies have previously filed for bankruptcy.
The group also warned that Sycamore is financing much of the Walgreens acquisition with debt, a move that could expose the retailer to financial risk in the future.
“This leveraged buyout strategy burdens private equity-owned companies with heavy debt loads, often diverting resources away from innovation, workforce development, and adapting to market shifts,” the organization cautioned in its March report.
The concerns come more than a year after credit rating agencies downgraded Walgreens, citing ongoing struggles with shrinking pharmacy margins and declining retail sales.
A portion of Walgreens’ financial challenges has also been tied to its costly expansion into healthcare delivery. The company invested billions of dollars in VillageMD medical clinics, but the returns were slower than expected. As a result, Walgreens shuttered underperforming locations and, last year, acknowledged it was weighing a full sale of the primary care chain.
Even with a turnaround strategy underway — including cost-cutting measures and a major reduction in store count — Walgreens has continued to post steep losses this year. In the third quarter, the company reported a net loss of $175 million, an improvement of $519 million compared to the same quarter last year.
Ahead of the sale, Walgreens also carried significant debt, including $429 million in short-term obligations and nearly $7 billion in long-term debt for the nine-month period ending May 31.
Sycamore Partners’ portfolio features several retail names that have faced financial distress in the past, such as Belk, Staples, and Lane Bryant. However, the private equity firm has limited exposure in the healthcare sector.
