What is the next step for Walgreens after its sale of investment capital?

Walgreens jumped aboard the private capital rescue ship named Sycamore Partners earlier this year and at the end of August, the agreement worth 10 billion dollars was concluded.

While some say that the sale of investment capital was necessary because retail health is faced with many opposite winds, at least one follower of the industry is concerned about what awaits us for Walgreens. Investment capital companies are generally trying to leave a company five to seven years after buying it.

“Health care is a long -term industry. This is long -term health. It is a question of maintaining the health of people over the decades. Monitoring of investment capital movements.

Under Sycamorens, Walgreens will be divided into five independent companies: Walgreens (Pharmacy), The Boots Group (Health and Beauty Retail Business), Shields Health Solutions (Specialty Pharmacy Solutions), Carecentrix (Home Health) and Villagemd (primary care).

Sycamore Partners and Walgreens refused to comment.

What could be in advance

There are several reasons for which Parr finds this sale to the partners of Sycamore concerning.

The first is that more than 70% of the agreement is funded by debt, which means that Sycamore does not have “much skin in the game,” he said.

“There has already been a lot of coverage on the financial problems of Walgreens … And now you add much more responsibility than Sycamore poses on this company which has already had trouble. This could really spell a lot of financial problems for Walgreens,” said byr, noting that in the first quarter of the year, 70% of Parr’s bankruptcies, noting in the first quarter of the year.

He added that many communities have on Walgreens as the only pharmacy, so that all Walgreens’ financial challenges will have a direct impact on consumers.

The funding of the agreement of the agreement and the disturbing financial problems of Walgreens are not the only reason which concerns Parr.

Sycamore Partners replaced Walgreens CEO, Tim Wentworth, with Mike Motz, who was previously CEO of Office Retail Store Stores, another Sycamore company.

“Under the watch of this CEO, Staples has closed a third of its stores,” he said. “It has reduced tens of thousands of jobs. We are begging that if Sycamore applies this same manual to Walgreens, if this CEO which comes from Staples applies this same manual to Walgreens, we will have … Thousands of closed stores, tens of thousands of layoffs, pharmacy deserts in neighborhoods that are already launching with access to medication. “

Sycamore Partners have also supervised several other high -level bankruptcies, including Belk, Nine West and Aeropostal.

As for dividing Walgreens into five distinct companies, par speculates that Sycamore tries to determine which company is the most profitable, which will probably lead to retail stores It is a company with a lower margin and layoffs in companies that are not as profitable as others.

Not everyone has negative views of the agreement

For Michael Greeley, co -founder and general partner of Flare Capital Partners, disintegration of the company was the right decision. The retailers had difficulties in recently healthy care and Walgreens retail business reduced very efficient assets like Shields and Carecentrix.

“I think it was a great decision to disintegrate these disparate assets,” he noted.

Another health expert echoes this, noting that Walgreens failed to link all its assets to a transparent experience for consumers. This is probably why Sycamore divides it.

“In the end, the five companies all have margin profiles, cost structures and different success of success: the company has never been able to capitalize on the reciprocal value between each company. In comparison, CVS has done [this] With its acquisition of Caremark, which lowered its medication costs, and the merger with Aetna has created a closed loop on the acquisition and negotiation of customers, “said Warren Templeton, general manager of Health2047, The Venture Arm for the American Medical Association.

That said, there is no doubt that this agreement will lead to store closures, which will have a significant impact on the poorly served communities.

“They will close stores that are not profitable or do not have the potential to generate available cash flows. And the concern is, do they begin to close the stores on the markets which create deserts of health care? ” Greeley said.

It should also be noted that most of the Sycamore experience has been in retail, not on health care.

“It is not only a typical retail takeover, what Sycamore is used to it,” said Parr. “This is a much more important giant to manage, and Sycamore already has a context of small retail companies in bankruptcy. So, if this same trajectory occurs with Walgreens, it will be even more devastating than nine West that goes bankrupt. ”

Photo credit: Joe Raedle, Getty Images