Pharmacies are more than just stores – they’re vital links between people and their health care.
One of us, Patrick, witnessed this firsthand in 2003 while working as a pharmacy technician at Walgreens in a midsize West Texas town. Each day involved handling hundreds of prescriptions as they moved through the system – meticulously counting pills, deciphering doctors’ handwriting and sorting out confusing insurance issues. The experience revealed that how pharmacies are owned and managed is as much a public health issue as it is a financial one.
Fast-forward to today, and Walgreens – one of the world’s largest pharmacy chains, which filled nearly 800 million U.S. prescriptions in 2024 – is at a turning point. In March, the company announced it would be acquired by private equity firm Sycamore Partners for US$10 billion, just 10% of its peak market value. That deal takes the storied pharmacy chain off the public market for the first time in nearly 100 years.
We’re professors who study the intersection of medicine and business, and we think this deal offers a window into the future of pharmacy care. It matters not just to pharmacists but also to the tens of millions of Americans who rely on outlets like Walgreens to meet their everyday health needs.
The rise and struggles of Walgreens
A lot has changed in the pharmacy industry since 1901, when Charles R. Walgreen Sr. purchased the Chicago drugstore where he served as a pharmacist. The company went public in 1927, expanded rapidly throughout the 20th century and grew to 8,000 stores by 2013. By 2014, a merger with the European pharmacy chain Alliance Boots made Walgreens one of the largest pharmacy chains in the world.
More recently, however, the picture for the pharmacy industry hasn’t been so rosy. Labor costs have risen. Front-end retail sales – things like snacks, greeting cards and cosmetics – have fallen. And financial pressures from pharmacy benefit managers – those third-party groups that manage the cost of prescription drug benefits on the behalf of insurers – have grown.
All of these things have significantly constrained revenues across the industry, leading stores to shutter. Some estimates suggest that as many as one-third of U.S. retail pharmacies have closed since 2010.
Against that backdrop, Sycamore Partners’ March acquisition of Walgreens raises big questions. What does Sycamore see in this investment, and what might their strategies imply about the future of American pharmacy care?
Framing the private equity bet
Private equity firms typically buy companies, streamline their operations and seek to sell them for a profit within five to seven years of the acquisition.
This growing movement of private equity into the global economy is by no means limited to health care. In 2020, private equity firms employed 11.7 million U.S. workers, or about 7% of the country’s total workforce. The total assets under management by such investors have grown by over 11% annually over the past two decades, a trend that’s expected to continue.
In looking at Walgreens, Sycamore, like many of these businesses, likely sees an opportunity to buy low, cut costs and improve profitability. One survey of private equity investors found that the most common self-reported sources of value creation in these deals for companies of Sycamore’s size were changing the product and marketing it more robustly to drive demand, changing incentives for those within the business, and facilitating a high-value exit.
While private owners may have more patience than public markets, critics argue that private equity firms tend to have a short-term focus, looking for quick, predictable services of margin improvement – like, for example, cutting jobs.
There’s some evidence in favor of that claim. One study found that employment often drops in the years following a private equity buyout. And if the focus shifts to repaying debt or prepping for resale, long-term projects, such as investing in future innovation, can get deprioritized.
The history of privatized public companies offers a mix of successes and failures. Dell Technologies and hotel chain Hilton are two prominent examples of companies that went private, restructured successfully and came back stronger. In those cases, going private helped management focus without the constant pressure of quarterly earnings reports.
On the other hand, companies such as Toys R Us, which was taken private in 2005 and filed for bankruptcy in 2018, show how high debt and missed innovation can lead to collapse.
What’s next for Walgreens
So, where does this leave Walgreens − and the investors involved in the deal?
If part of the returns will be driven by “buying low” – the easiest indicator of potential future success to measure as of today – Sycamore started well: Its purchase price represents a mere 8% premium over the market trading value on the day of the announcement, significantly less than the 46% seen across industries in 2023. That said, Sycamore financed 83.4% of the purchase with debt, a number on the high end for these kinds of transactions. Health care groups have pointed to this number while raising concerns that innovation-focused investments may take a back seat to debt obligations.
As the dust settles on the purchase, Sycamore has indicated an interest in splitting Walgreens into three business units: one focused on U.S. pharmacies, one on U.K. pharmacies and one on U.S. primary health care through its VillageMD subsidiary.
That’s not unusual: Sycamore has used a similar approach before with its investment in the office supply retailer Staples, a strategy that has garnered strong financial returns but been called into question for its long-term sustainability.
Given the significant financial challenges VillageMD has faced since its acquisition by Walgreens, this represents an opportunity to separately evaluate and optimize its performance. Meanwhile, Sycamore’s historic focus on retail and customer-focused businesses might help it modernize the in-store experience or optimize staffing.
For more than a century, Walgreens has survived and adapted to sweeping changes in retail. Now, it’s entering a new chapter – one that could reshape not just its own future but the role of pharmacies in American life.
Will Sycamore help Walgreens thrive, using its resources to strengthen services and deliver more value to customers? Or will pressure to generate quick returns create problems? Either way, the answer matters – not just for investors but for anyone who’s ever relied on their neighborhood pharmacy to stay healthy.