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Private equity firm Apollo Global Management Inc and Indian billionaire Mukesh Ambani’s Reliance Industries Ltd have made a binding offer for chemist chain Boots.
If it can close a deal, the consortium has a good chance of making a decent return on the British high-street stalwart. But the remedy for Boots won’t be cheap or easy.
The formal proposal, fully backed by committed financing, values Boots at more than £5 billion ($6.3 billion), Bloomberg News reported. Current owner Walgreens Boots Alliance Inc. will retain a minority stake in the business.
At that level, the buyers won’t be overpaying. The retailer’s enterprise value has long been estimated at
about £5 billion, although Walgreens had initially eyed a price tag as much as £7 billion. But the valuation does reflect the fact that Boots will need a complete overhaul. The business has struggled, as shopping shifted
online, and AS Watson
Holdings Ltd steered rival Superdrug into beauty and services. Nevertheless, there are opportunities for a new owner. The first is to invest in Boots stores and improve the online proposition. Although the chain has made progress, with new beauty halls, for example, there is more work to do. Many high-street outlets look dreary.
The pandemic, which saw Boots administer Covid tests and vaccines, highlighted the potential for a broader range of health-care services. The retailer already offers treatments for acne, period pain and mental-health support. Meanwhile, it could push further into the beauty market, capitalising on the withdrawal from the high-street of British department store Debenhams, a big player in fragrance and cosmetics.
But the real growth potential would be expanding Boots in India. Although the retailer has a business in Thailand, it lacks scale in Asia. Covid-19 underlined the need to improve health care in India, as more than 60% of the population isn’t covered by insurance. If Boots can carve out a role in providing prescriptions and services in India, as it has in the UK, this could prove lucrative. None of this will come cheap, however. Walgreens has long been more focused on the US than its European outpost, and the consortium will need to invest heavily in Boots.
Reliance can draw on
its cash-generative refining business. If Apollo and
Reliance can revive Boots and give it a new international revenue stream, they could bring the business back to market for a superior valuation.
—Bloomberg