Sycamore Partners taking on 83% debt in financing their Walgreens leveraged buyout–some observations

An analysis cited in HealthExec of the Walgreens buy from the SEC 8-K filing indicates that Sycamore Partners’ offer is a near-classic leveraged buyout, with Sycamore taking on much more debt than they have assets in their funds. Sycamore is taking on 83% debt, according to the Private Equity Stakeholder Project (PESP) SEC filing analysis. In 2024, PEs took on average 41% in debt.

• Sycamore’s fund used for the $2.5 billion equity commitment, Sycamore Partners III LP, had at the end of 2024 only $1.29 billion, according to Pitchbook.
• As this Editor closed yesterday, Sycamore pulled rabbits-out-of-hats to finance the WBA buy. There are at least 15 financial companies involved. The PESP article breaks it down by amount identifying combined investors and lenders. This total is $22.5 billion, with the debt financing alone far higher than the Crain’s Chicago Business report TTA referenced on 4 March.
• An overview: $5 billion in revolving credit, a a senior secured first-in-last-out term loan facility of $2.5 billion, a $1 billion receivables purchase facility, another senior secured asset-based revolving credit facility of $850 million, another senior secured asset-based revolving credit facility of $2.25 billion, a bridge facility of $2 billion, a preferred equity generating gross proceeds of $1.25 billion, another a senior secured term loan facility in an aggregate principal amount equal to $2,500 million, and a few more billions in bridge loans and loans secured by real property.

To quote the PESP (excerpted from their full statement):

“This leveraged buyout tactic saddles private equity-owned companies with substantial debt, often draining resources that could otherwise be invested in innovation, workforce development, or adapting to market changes.

Instead, companies under private equity ownership must channel much of their revenue toward servicing this debt, leaving them vulnerable to financial distress and bankruptcy.

Sycamore Partners, in particular, has demonstrated problems at the portfolio companies it has owned. Under Sycamore Partners’ ownership, multiple companies, including Belk and Nine West, have filed for bankruptcy.”

Editor’s Note: This Editor shares the PESP’s concerns and adds her own POV.

• Taking it from the last part, rescuing retail is high-wire-level risk and doesn’t have a lot of successes. Sycamore actually has a few–Staples, Playa Bowls, Ann Taylor, and some others. They also have their share of failures.
• On LBOs: They happen most when money is scarce and deals resemble hundred-piece jigsaw puzzles. My salad days ‘grad school’ was as a very small (but well remembered) part (right) of the Golden Age of LBOs in airline deregulation in a similarly cash and inflation-strained time, the early 1980s. My next 13 years were spent in a company, Avis, that had previously been LBO’d so frequently that their only recourse was employee-ownership (ESOP). In both cases, opportunity only went to those willing to take real risks.
• What happens later is a mixed bag. Avis could not go the distance as an ESOP and was acquired, then spun off. New York Air was merged into another airline and out of existence. Many LBOs, as the PESP notes, end with strapped companies barely hanging on, merged out–or bankrupt. So do many IPOs, particularly the blank-check/SPAC variety. And ESOPs don’t have an easy time either, as later happened with Avis.
• But the question I have for the PESP: did Walgreens, having been LBO’d a few times itself, and sinking under bad decisions and a mountain of debt and general misery, have any alternatives–and what would they be? An ESOP the size of Avis’ is uncommon today, though there are a few hundred annually. Shrink to profitability looked unlikely especially for a public company.

If there are alternatives that come up for WBA’s management, the 8-K notes that there is a 35-day ‘go-shop’ period, where WBA is free to seek other buyers. There are also termination fees after this point and allowances for modifications up to 6 March 2026.

Does Sycamore have a path to profitability for the pharmacy and base retail operation? There are 310,000 employees across 12,500 retail pharmacy locations in the US, Europe, and Latin America who deserve an answer from Walgreens’ management, beyond the platitudes of press releases.