After being signed off work with high blood pressure, Marc Foley has spent the past month battling to get help from the National Health Service.
As he tried, unsuccessfully, to book a GP appointment, the 48-year-old’s blood pressure rocketed, forcing him to visit the A&E department of Barnet hospital in north London, where he endured a nine-hour wait to be seen.
“There were queues out the door because everyone that can’t get a GP appointment is piling into A&E. It has been an absolute joke,” Foley said.
The strain on the NHS is frustrating patients, driving doctors to exhaustion and giving the government a headache. For the high street chemist Boots, though, it could mean a brighter future.
Health secretary Sajid Javid wants to ease the pressure on GP surgeries by making community pharmacies the first port of call for patients seeking treatments for minor ailments. The potential for Boots to pick up more business from the the NHS will be central to the sales pitch by investment bankers at Goldman Sachs, who are being lined up by US owner Walgreens to sell the chain that first opened in Nottingham 172 years ago.
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It’s a growth story that Boots desperately needs after years of being nibbled from all sides — supermarkets have undercut it on toiletries, online beauty retailers lured the Instagram generation and internet pharmacies are eating into prescription sales.
Still, with a highly trusted brand and an exposure to the desirable health and beauty sectors, the sale process for Boots should attract bidders.
PRIVATE EQUITY
Cash-generative bricks and mortar retailers are back in vogue, with private equity firms sitting on record levels of cash to invest. In October, Clayton, Dubilier & Rice bought Morrisons for £7 billion. Using the same multiples as that deal, Boots would be valued at about £6 billion, according to the investment bank Cowen.
Boots is thought to own between 30 per cent and 40 per cent of its 2,200-plus stores and it holds more than 1,200 pharmacy licences. The government caps the number of licences for each local area, providing Boots with the sort of predictable cashflows that private equity firms love.
“Each [pharmacy] licence is a special thing,” said Tristan Nagler, partner at private equity firm Aurelius, which agreed to buy Lloyds Pharmacy for £477 million last month. “You obviously have the threat of online [pharmacies] but you’re not going to get Lidl or Aldi opening up next to you selling pharmaceuticals.“
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Pharmacies, though, receive almost 90 per cent of their revenues from NHS England, which holds the whip hand in negotiations. Accountancy firm EY forecast that between 64 per cent and 85 per cent of the UK’s community pharmacies will be in deficit by 2024 under current funding schemes.
Boots is also venturing into private treatments, offering more than 100 online services from acne treatment to hair-loss clinics.
Shedding Boots could make Walgreens a target itself. In 2019, it received a $70 billion buyout proposal from KKR that did not progress. For Walgreens’ executive chairman Stefano Pessina, who has done more than 1,500 deals in his career, the revival of such a deal would be a fitting way to bow out.
SUPERMARKETS
Shore Capital analyst Clive Black believes that Tesco and Sainsbury’s — led, respectively, by Ken Murphy and Simon Roberts, both former Boots executives — will run the slide rule over the high street chemist.
It could yield “enormous” cost savings in buying and logistics, he said.
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The billionaire Issa brothers, backed by private equity firm TDR Capital, are also seeking acquisitions to drive more shoppers into Asda, which they acquired last year.
Sainsbury’s purchase of Argos in 2016 — in which it shuttered hundreds of high street outlets and opened Argos concessions in its supermarkets — could form a blueprint for Boots, which has more than 1,000 shops on high streets.
Supermarkets, however, will think carefully before bidding after regulators blocked the merger of Asda and Sainsbury’s two years ago.
Watchdogs would be on the alert for local overlaps between Boots and the supermarkets’ own pharmacies, as well as the prospect of reduced competition in everything from toiletries to meal deals. McKesson, the former owner of Lloyds Pharmacy, is said to have marketed the business to financial buyers this year only to avoid falling foul of regulators.
IPO
Any bidders for Boots will come up against Pessina. During negotiations to buy Boots in 2006 the wily dealmaker is said to have duped Boots chairman Sir Nigel Rudd and his team into thinking he was past it by appearing doddery.
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If he doesn’t get the bids he wants, Pessina could return Boots to the London stock market.
Mature retailers are valued at a fraction of their faster- growing online counterparts by public market investors.
Boots would offer healthy dividends, however its portfolio of 1,000-plus leases with an average of ten years to run would be a significant turn-off.