Walgreens, one of the most recognizable names in American retail, was taken private by Sycamore Partners in a bold move last March 2025.
The $23 billion deal marks Sycamore’s largest and riskiest acquisition yet, but, above all, is a dramatic turning point for a struggling pharmacy chain once worth around $100 billion.
And behind these facts lies a cautionary tale and a strategic inflection point with lessons for every mid-level business leader.
In this newsletter, I’ll walk you through how to make sense of fast-changing industries, aggressive private equity moves, plus the strategic missteps you should watch for.
The decline of the old model
Walgreens built its business on a clever combination of pharmacy and retail. To get their prescriptions filled, customers must walk all the way to the back of the store, passing by several aisles stocked with candy, soda, toys, greeting cards, and everyday essentials.
This setup creates a self-reinforcing cycle: once a customer experiences the ease of shopping while picking up their medication, they’re likely to return, hooked by the convenience of a one-stop shop.
When I was a kid, my grandma would take the whole family there for ice cream after dinner. We walked around and played with the toys. It was a fun place to be, and I’ve good memories of wandering their aisles.
Unfortunately, with the current strong competition in both medicines and convenience items, this model is no longer sustainable at Walgreens’ scale.
Growing horizontally
Around the end of the 1990s, Walgreens made decisions to expand their business. They grew horizontally, opening several stores throughout the country. Later, they bought Duane Reade, part of Rite Aid, and Boots in the UK.
Horizontal growth is a valid retail strategy. But eventually, you’ll hit a saturation point where there is no more room to expand geographically and no more new customer segments to target. Once you’re there, it’s time to change your strategy. But Walgreens kept going, reaching a whopping total of 12,712 stores in 2015.
So now, in many areas of the U.S., what you see is a Walgreens on one corner, a Duane Reade on another, and a Rite Aid on the third. The lack of distinct branding in this clustering scenario led to cannibalization (self-competition) and the consequent revenue decline.
Overseas expansion also failed to significantly boost profit. Walgreens’ international margins are likely 4% to 5% higher than in the U.S., a positive percentage, but not enough to keep the entire business healthy.
CVS chooses a different path
Meanwhile, CVS, a close competitor, chose a different path: a vertical growth approach by merging with Caremark, a pharmacy benefit manager (PBM). And that became a major issue for Walgreens.
PBMs like CVS Caremark negotiate with pharmaceutical companies on behalf of medical insurers to determine what drugs are covered, at what rate, who gets reimbursed, and how much the patient pays. In other words, a competitor started to dictate the rate Walgreens received for its medications. Not a great position to be in.
Currently, 80% of prescriptions are filled through PBM negotiation in the U.S., with 27% under CVS Caremark’s control. With almost one-third of the market in their hands, CVS Caremark can potentially cripple Walgreens’s profits just by determining a lower rate for them and a better one for Walmart, for instance.
Walgreens could use discounts and other offers to attract customers, but even that is usually contractually limited. And, on top of all that, Walgreens was facing tighter margins than ever due to overall PBM dynamics.
Walgreens’s next step could have been trying to use political power to enforce antitrust laws against unfair business methods and illegal mergers. But it wouldn’t be effective either way at that stage for the reasons I’ll present next.
Major retailers join the game
Meanwhile, other retailers like Walmart and Kroger ramped up their pharmacy investments to expand their footprint and drive sales of other products. This strategy mirrored what Walgreens had traditionally done, but on a much larger scale—Kroger and Walmart operate significantly bigger stores.
Then Amazon entered the scene, also selling medication. With no physical stores, Amazon naturally operates with lower overhead, which allowed it to quickly become a major competitor. Adding to that, Amazon’s product lineup includes the same retail items that once powered Walgreens’ success.
To make matters worse, direct competition with Amazon eroded one of Walgreens’ key value propositions: convenience. Ordering something online and receiving it the next day is far more convenient than driving to a Walgreens store. And other players like Instacart and DoorDash also began entering the space.
In Europe, this kind of competition has resulted in decreased margin erosion. Part of the reason is cultural—Europeans are less inclined to purchase retail products through services like Amazon, Instacart, or DoorDash. But in the U.S., the rise of online distributors has significantly impacted Walgreens’ profits in recent years.
The disastrous VillageMD strategy
Now, let’s talk about VillageMD. Walgreens tried to pivot into healthcare by acquiring them in 2021. The idea was to offer full-service doctor-led clinics in their stores instead of only basic procedures with a nurse practitioner.
It didn’t work at all, and Walgreens ended up writing off $12.4 billion. And the reasons behind this major setback were many:
· They were competing with already established urgent cares.
· Their stores didn’t have enough room for fully equipped clinics.
· They assumed people would shop after seeing the doctor, but when you’re sick, you don’t want to browse the aisles.
At this stage, losses mounted, and debt soared. The CEO and CFO seats had gone through rapid turnover over the years. Their debt-to-equity ratio was at 0.92, historically high for them—and any healthy company, for that matter.
And that’s where Sycamore Partners came to the rescue.
Private Equity Buyout by Sycamore Partners
Sycamore bought Walgreens for $11.45 per share, around 8% premium to the stock’s closing price. Private equity firms usually avoid big retail deals simply because they tend to blow up. Think RadioShack, Sears, Toys R Us. While Walgreens is in healthcare, it was operating similarly to retail.
Sycamore Partners has a long history of retail and, among the few private equity firms operating in this segment, is the only one making large deals. But it’s hard to find deals in the current environment, so Sycamore might also have been pushed into finding alternative (or riskier) ways to make a return.
The good news is that private equity creates flexibility. They can restructure companies outside the public eye, close deals without shareholder interference, and make operational changes. But Sycamore Partners is taking on a huge amount of debt, estimated at around $18.7B. They’ll need to move fast to avoid damaging their cash flow.
To prevent disaster, I believe Sycamore Partners will adopt a bold strategy involving splitting Walgreens into three parts:
· They will sell VillageMD off quickly as soon as the acquisition is finalized. Sycamore Partners will regain some capital from this sale as shareholders will receive up to an additional $3 per share, depending on the final price.
· Maybe Boots UK and the rest of their international business will IPO. But it might be that they are strong enough to continue and stand on their own.
· Walgreens U.S. is the toughest one because it doesn’t look sustainable without margins over 25% (a percentage aligned with their historical margins and considered as decent retail practice).
They will need to close many, many stores, unfortunately. And some communities might lose access to medication, while other companies will scramble to fill the space.
I believe Sycamore will also try to sell Walgreens U.S. as a whole to a PBM, like Express Scripts or directly to Cigna Group. CVS probably won’t be considered due to antitrust concerns. UnitedHealthcare is an unlikely choice, given the issues caused by the assassination of their CEO.
Walgreens provides other services such as complex compounding medicines and C-Type benefit services. But they are a much smaller portion of the business, and their performance shouldn’t affect their overall results much.
I also believe that Sycamore will try to convert some debt holders into shareholders. This often happens in situations where a company is struggling financially and cannot fully repay their debts.
In such cases, creditors may agree (or be forced) to exchange their debt for equity, meaning they receive shares in the company rather than cash. This can help reduce the company’s financial burden, improve the balance sheet, and allow it to continue operating.
However, for debt holders, this type of arrangement carries a risk. While they might gain ownership stakes, they are exposed to the company’s future performance instead of having guaranteed repayment.
Implications for Mid-Level Managers
When facing a similar scenario, mid-level managers must be prepared. When a company is acquired by a private equity firm like Sycamore Partners, we can anticipate multiple rounds of cost-cutting measures and layoffs. But, at the same time, new initiatives are likely to be introduced to enhance efficiency and productivity.
In this environment, flexibility is key. Positioning yourself and your team to quickly adapt and seize emerging opportunities will be critical. Those who stick to business as usual may find themselves in trouble.
· The priority is understanding the private equity firm’s strategy and determining where you fit within it. In the case presented here, being part of Walgreens U.S. versus Boots UK, for example, will mean a different approach and a distinct playbook.
· Once this foundation is established, assess how you and your team can contribute to the broader strategy. Identifying ways to enhance alignment and strengthen your position within the organization will be vital for long-term stability.
· Above all, maintain transparency with your team. This is bound to be a challenging period, and clearly communicating your understanding of the strategy will help manage expectations.
Depending on the analysis, the conversation could involve preparing them for potential job losses or reassuring them of their stability, always with the understanding that nothing is guaranteed.
Taking a pragmatic yet forward-thinking approach will help you and your team stay resilient amidst the evolving corporate landscape.
Final Thoughts
Walgreens was a company under siege—from competitors, internal strategic missteps, and financial pressure. They’ve tried to pivot, integrate, and grow, but often in the wrong ways.
Sycamore’s takeover is bold, maybe even reckless. But it might be the only path forward. Nowadays, I associate Walgreens only with the place I might go to when I need a pharmacy. They have lost most of their selling points.
We can learn a lot by reflecting on this case study. This isn’t just about another private equity buyout. It’s about what happens when legacy business models hit a wall, when vertical integration beats horizontal sprawl, and when competitors gain the power to set your margins.
If Sycamore’s strategy works, it could change how private equity firms look at retail. It would provide a playbook. If it fails, it could become another Sears or KB Toys.
I don’t think the latter will happen, as people still need local pharmacies. Online channels can’t fully replace them. But the transition is likely to be tough. We shall see.