Boots the Chemist is being beeped through the self-checkout till — but who will be in the bagging area to snap up Britain’s biggest pharmacy chain?
Umpteen private equity firms are said to be sniffing around Boots and analysts speculate supermarkets could be interested too, after US owner Walgreens Boots Alliance (WBA) fired the starting gun on a possible sale.
Any sale of the 172-year-old company would likely be one of the biggest deals in Britain this year.
It could also herald major changes for Boots, which has 2200 branches, 51,000 staff and made sales of £6 billion in 2020. Analysts say store closures may loom if private equity wins out.
Bain Capital — owner of baker Gail’s, Esure insurance and Canada Goose coats — set the ball rolling on sale talks after reportedly approaching Walgreens about a takeover towards the end of last year. It is said to be teaming up with CVC Capital, owner of the RAC, on a joint bid. CVC declined to comment.
Other private equity firms reportedly running the rule over Boots include Advent, Carlyle and KKR, which owned the retailer before selling to Walgreens. Blackstone looked but is understood to have no interest. TDR Capital, which helped finance the takeover of Asda last year, and CD&R, which snapped up Morrisons, are both said to be circling. All declined to comment.
Companies beyond private equity could be interested too. A City analyst whispers: “Boots would be a good fit for the UK’s biggest supermarket, if it could get it over the line with competition watchdogs.”
The current CEOs of Tesco and Sainsbury’s will know all about the company, having once worked there together as joint chief operating officers. But Sainsbury’s is still working on integrating Argos, while Tesco’s boss had a brusque “no comment” when asked about Boots recently.
Could Amazon be interested? It has moved into health in the US, where Prime customers receive unlimited, free medicine deliveries in two days.
Danni Hewson, financial analyst at AJ Bell, said: “Amazon could be tempted to get into the lucrative UK market as well, particularly as it’s already flirting with bricks-and-mortar stores as part of its portfolio.”
Why is Boots so in demand?
“After years of decline and questions about the state of the High Street, the past couple of years have actually made [Boots] relevant again,” said Hewson.“It’s not [just] the fact that sales were up over the last quarter, that health has become a fashionable enterprise or that the NHS is struggling to deliver basic services while under the Covid cosh — it’s the fact that all three have come together in perfect harmony.”
Walgreens first bought a stake in Boots in 2012 and swallowed up the rest of the company two years later in a deal worth $22 billion (£16.1 billion). It claims to have invested £2.8 billion since then.
It has not been a great investment. Analysts struggle to put a price tag on the retailer today, but give a range of £5 billion to £12 billion — or at least 20,000,000,000 Advantage Card points.
The wide range is down to attempts to balance the value of Boots’ money-making pharmacy licences, cosmetics brands and healthcare services against its expensive High Street stores and underperforming website.
Unlike other branch-heavy retailers that struggle with big rents on shops with dwindling sales, Boots branches include lucrative pharmacy licences and a sizeable optician business (550 branches), which help revenues. It owns a host of beauty brands like No. 7 and Soap & Glory that aid margins and are part of a fast-growing market. It is also rapidly rolling out healthcare services, including Covid vaccines and in-store GP trials.
Xian Wang, a retail analyst at Edge by Ascential, said: “Healthcare provision is going to be a major theme this year and if Boots can offer affordable private GP services, that could really be a differentiator in its market”.
Analysts expect any buyer to invest heavily in online. The chain launched a partnership with Deliveroo was launched last year as part of a digital push and has “made some notable moves toward digital transformation in 2021,” Wang said, but there is still plenty of room to grow. Just 15% of sales are currently digital.
An acquirer may also seek to close branches, analysts say, although the pharmaceutical licences and associated regulation could make the usual private equity cost-slashing more difficult.
A spokesperson for WBA said a “strategic review” of Boots was at an “exploratory phase” as part of “a greater focus on US healthcare”.