Sycamore Partners’ plan to takeover Walgreens ‘incredibly risky,’ analyst says

Walgreens is entering its private company era with Sycamore Partners’s take-private deal, announced in early March, to buy it for at least $22 billion.

While getting off the public market can have its perks, analysts say the Walgreens Boots Alliance deal with the private equity (PE) firm could be risky, as it saddles the retail pharmacy giant with a significant amount of debt.

Of the $22 billion involved in the deal, 83% (or roughly $18.3 billion) is debt from various banking partners including Goldman Sachs and JP Morgan, according to an analysis from the nonprofit Private Equity Stakeholder Project (PESP). That’s more than twice the average debt level (41%) PE firms used to acquire companies in 2024, the report found.

Pinching pennies

While it’s not clear why this deal specifically relies so heavily on debt, it’s a common practice when a firm may not have that much capital to invest in the first place.

“It’s really common when private equity firms acquire companies for them to use a little bit of their own and their investors’ money and then to use a lot of debt to acquire the company,” Baker said. But, he added, 83% debt is “incredibly high, even for private equity.”

The Walgreens deal is also the largest Sycamore has ever made, and the first time the PE firm has ventured into the healthcare realm.

Risky business

As the debt used to finance the deal gets placed on Walgreens’ balance sheet, it increases the company’s chances of going bankrupt, according to Baker.

“It’s incredibly risky,” he said. “It’s a massive amount of debt. It feels like a house of cards.”

The deal raises concerns for the company’s 300,000+ employees, as it’s not clear how Walgreens would go about paying off that amount of debt, he added.

“Our significant concern is: Is Sycamore Partners’ plan for Walgreens to essentially lay off tens of thousands or more workers?” Baker said.

Plus, roughly 9 million people fill prescriptions at a Walgreens pharmacy every day, according to the company’s website; if the company decides to close more stores, some of those people could lose access, he added. (The company previously announced in 2024 plans to close 1,200 stores over the next few years.)

Sycamore, meanwhile, may have less to lose if Walgreens doesn’t perform well. According to Baker, the most the firm could lose is the $2.5 billion equity commitment it pledged as part of the deal.

Analysts’ takes

There are pluses and minuses to the transaction, Elizabeth Anderson, senior managing director at investment banking advisory firm Evercore, told Healthcare Brew.

On the plus side, becoming a private company could be helpful for Walgreens because it’s “generally easier to make the investments that need to be made in order to execute a turnaround” without having to worry about hitting quarterly earnings targets, Anderson said.

On the minus side, the fact that Sycamore has no healthcare experience (the PE firm has only invested in or acquired retailers in the past) is “probably a risk in terms of its ability to improve the business,” she added.

One last look

Walgreens reported Q2 2025 earnings on April 8, the last time the company will publicly release financial results before going private.

While the company’s performance was better than analysts expected, according to CNBC, Walgreens still reported a $5.6 billion operating loss, including $969 million in combined legal payments for opioid settlements as well as to settle a dispute with telehealth company Everly Health Solutions over a Covid-19 testing contract.

On the upside, the company reported Q2 sales were up 4.1% from $37.1 billion to $38.6 billion.

Walgreens executives said they’re withdrawing its previously issued 2025 financial guidance due to the Sycamore deal, which it expects to close in the last quarter of the 2025 calendar year.

Sycamore declined to provide further comment. Healthcare Brew also reached out to Walgreens for comment but did not hear back by publication.