Sat. Jan 22nd, 2022


When private equity last bought Boots in 2007, it was a big deal. Big because the buyout industry did not acquire UK blue chips, big because a lot of leverage was involved, big because of the cachet Boots had with UK consumers.

Boots is on the block again. That’s still going to be a big deal, even if the suggested price is maybe half what Alliance Boots went for 15 years ago. But it will not be rocket science for a buyer to revive the fortunes of a company that still occupies a peculiar place in the love of consumers.

The company’s fate is clear enough. Just as Walmart found with Asda, a global strategy set in the US did not always work in the UK. Walgreens was distracted by problems in its home market. The solution for Boots is a little local focus, some investment and a sale over four or five years.

It can go to a trader. Both Sainsbury’s and Tesco are run by ex-Boots men. But Tesco has just turned itself around after years of poorly rated deals, and Sainsbury’s is still struggling with Argos. It would be a mistake for either to try to buy Boots.

It could float. But as anyone who has visited a Boots store or still used its clumsy website knows, it needs work. This is not an easy e-commerce growth story of the type of LSE investors who are welcome.

It’s likely to go to private equity – especially since Dominic Murphy at CVC, who looks to bid, knows the business from within. He did the 2007 transaction at KKR; he has since sat on the board at Boots and Walgreens.

The private equity playbook will probably have something like that.

First: sort Boots online listing. Walgreens trumpets the progress made on this front. Sales on Boots.com in the most recent quarter were more than double their pre-pandemic levels, Walgreens said in its results last week. But it’s not hard to double things up if you’re starting from a very low base. Online makes up only 15 percent of Boots’ retail sales, even though it has been an “omnichannel” retailer for years.

Second, improve how Boots uses Advantage map data and performs promotions. The loyalty cardholders of more than 14 million have long been a strength of the company. But it dropped to 11.7 million active customers after the pandemic shifted shopping habits. While Tesco’s meticulously tailored promotions have made an important part of its revival through its club card pricing, Boots is failing to make the most of its scheme.

Third: expand investment in promising stores and renegotiate leases as they arise. Boots have invested in beauty salons, but the ratio of stores that are bland is still too high. The majority of its stores are leases, with an average of five years still running on the leases. Next showed what savings can be made: over the past few years, he has agreed on new rents at about half the previous level.

Fourth: put more marketing money behind Boots’ own brands, including No7 and Soap & Glory. They have not reached the American foothold that Walgreens is aiming for, but they still have promise.

Go out with a fun story about the opportunity in online beauty and pharmacy.

There are clear challenges for whoever buys Boots. It takes a skilled retailer to roll up their sleeves and get stuck, but no names have been driven to date. The regulated pharmacy part of the business adds complexity. This can make closing stores more complicated. This limits the cost savings a new owner can make, as pharmacies have to be staffed by qualified pharmacists, while the NHS puts the profit at stake.

It is debatable how smart it was for KKR to buy Alliance Boots in 2007. It ultimately yielded good returns, but also yielded some less pleasant headlines for the industry about job cuts.

Boots stands with John Lewis and Marks and Spencer as a brand that is loved by British consumers but at which they are not actually willing to go shopping. Another era of private equity ownership may not be palatable to everyone, but if Walgreens wants to get rid of Boots, it may be the only option.

cat.rutterpooley@ft.com

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