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Newswise — After years of financial turmoil, that it has reached a $10 billion buyout deal with private-equity firm Sycamore — a deal that is 10 times larger than the average “large” private equity deal of $500 million but still only 8% over its current trading value, according to , the Koch Family Professor of Practice in Family Enterprise at Olin Business School at Washington University in St. Louis.

“This low premium on the final sale price versus where it was trading reflects the significant headwinds in the pharmacy industry. More specific to Walgreens, the final price reflects a significant drop from a $100 billion valuation just a decade ago,” Boumgarden said.

Walgreens’ troubles are hardly unique. Over the last few years, CVS has closed 900 stores nationwide and plans to close 270 more in 2025. Rite Aid only emerged from bankruptcy after closing 800 stores and going private.  Meanwhile, nearly a third of smaller, independent pharmacies are estimated to be at risk of closure in the next year, according to , MD, managing director of WashU Olin’s

“Pharmacies are challenging businesses to operate. Issues like high employee turnover, unfavorable reimbursements and changing consumer habits, have caused pharmacy profits to suffer over the last decade,” Aguilar said.

“And yet pharmacists play a vital role in the American health-care system,” he said. “They offer unique skills to patients with complex needs, protect against medical errors and counsel patients to prevent unintended interactions. This expertise is vital to patient health and safety.”

Will Sycamore be able to right Walgreens’ ship? And what will be the long-term and short-term impacts for Walgreens employees, consumers and the industry? Below, Aguilar and Boumgarden answer these questions.

Why are pharmacies struggling? 

“The emergence of pharmacy benefit managers (PBMs) has dramatically changed the calculus for pharmacies in recent years,” Aguilar said. “While PBMs provide value to payers and enable tighter negotiation of drug prices, they also introduce additional costs for pharmacies. Mail-order services have also emerged as a way for consumers to receive their prescriptions at home. This is incredibly convenient for consumers, but these services are most often used with medications that are less time consuming for pharmacies to fill. As a result, retail pharmacies now deal with more complex, time-consuming prescriptions at exactly the moment that they are losing margin through more challenging price negotiations.  
 
“Similarly, many pharmacies, like Walgreens, have historically made a portion of their profit from nonpharmaceutical purchases in the store. As Amazon and others have increasingly become the vendors of choice for consumers looking for everyday goods, in-store purchases have been significantly negatively impacted. This creates a perfect storm in which companies like Walgreens find it challenging to maintain profitability.  
 
“Finally, the pharmacy workforce is under great threat as pharmacy schools struggle to recruit and pharmacy technician positions go unfilled. When a pharmacy is excessively busy with complex prescription issues, understaffing hits especially hard,” Aguilar said. 

How does this impact patient care?  

“Because of pharmacy closures and understaffing, patients experience longer wait times and have trouble finding a pharmacy that is actually open when they need it,” Aguilar said.
 
“Supply chain issues also mean that medications are frequently out of stock. All of this is frustrating and creates barriers to engaging with treatments prescribed by their doctors. Medication is not fun to take and may come with side effects, so patients are even less likely to follow through when we increase the level of difficulty in obtaining it in the first place.”  

What are the pros and cons of going private for Walgreens?

“In this kind of buyout, the hope is that the new firm will be able to look with fresh eyes at the business model and the opportunities that exist to address challenges,” Aguilar said. “Additionally, when compared with the situation of being publicly traded, private-equity investors may be willing to take a slightly longer view of the business prospect and make changes that ultimately create value, even if they are more costly in the short run.”  
 
Other benefits of going private include the option to pursue alternative business strategies without so much scrutiny and the lower cost of compliance compared to public markets due to extensive regulations, Boumgarden said.
 
“Examples of successful private-equity sales include Dell Technologies, whose 2013-18 time being private led to a significant jump in sales and profit. Hilton is another success story; the injection of capital and know-how really supported their operations,” Boumgarden said.
 
On the flip side, highly leveraged takeovers — those when the company is acquired using a large amount of borrowed money — like Toys “R” Us are typically not as successful because the debt makes it difficult to pursue strategic options, he said.

What impact could this have on the industry, employees and customers?

“The strategies taken by Walgreens are likely to have wide-ranging consequences for how we access health care and health-care products,” Boumgarden said. “If the strategies they pursue are successful, then you could imagine other competitors following suit.”

Boumgarden led a that examined, among other things, the various strategies different types of investors take during ownership transitions and how these transitions affect employees.

“When companies go private, there is often a significant impact on employment. Many of these companies have a 10-15% drop in employment two years later. I would not be surprised if we see something similar at Walgreens,” he said.
 
“From a customer standpoint, the question will be whether the injection of capital leads to an innovation in the customer experience that might not have been possible otherwise.” 
 
As for Sycamore, only time will tell if this was a good deal.
 
“For these investors, eventual success in the deal is often tied to the starting purchase price. That’s good news for Sycamore,” Boumgarden said. “Whether the company and broader industry can drive new strategy that matches the shifts in how people order and access care remains to be seen.”