Sycamore's Walgreens Buyout: A High-Stakes Debt Gamble with Goldman Sachs

Sycamore Partners’ $23.7 billion leveraged buyout (LBO) of Walgreens Boots Alliance (WBA) has thrust the retail pharmacy giant into the spotlight of one of the most highly leveraged private equity deals in recent history. With Goldman Sachs, JPMorgan, and Citigroup leading a syndicate of banks to underwrite over $18 billion in debt, the transaction hinges on a precarious balance between financial engineering and operational turnaround. Here’s why investors should be wary—and why some might still bet on Sycamore’s playbook.

The Debt Structure: A Mountain of Borrowings

The heart of the deal lies in its financing. Sycamore’s acquisition is 83% funded by debt—nearly double the average leverage ratio (41%) used by private equity firms in 2024. Key components include:
- $4.25 billion in bonds and loans specifically tied to the Boots division of WBA, marketed by Goldman Sachs and other banks.
- $18.3 billion total debt across senior secured term loans and bridge facilities, with Goldman Sachs Bank USA and JPMorgan Chase Bank as lead arrangers.
- $2.5 billion equity from Sycamore, representing its maximum potential loss—a fraction of the total transaction value.

This structure raises immediate concerns. shows a steady climb, and the proposed LBO would push liabilities to unsustainable levels. Analysts warn that WBA’s $5.6 billion operating loss in Q2 2025—driven by opioid settlements and operational missteps—exacerbates the risk of default.

The Sycamore Playbook: Retail Turnarounds Revisited

Sycamore, known for its 2017 LBO of Toys “R” Us (which filed for bankruptcy in 2017), claims expertise in retail restructuring. Its plan for Walgreens includes closing 1,200 stores by 2025 to cut costs and streamline operations. However, this strategy faces two critical hurdles:
1. Customer Access: Walgreens serves 9 million daily prescription customers. Store closures could reduce access to critical healthcare services, especially in rural areas.
2. Workforce Cuts: With 311,000 global employees, layoffs would strain public perception and operational stability.

The Role of Goldman Sachs: Enabler or Risk Taker?

Goldman Sachs’ involvement underscores its willingness to back aggressive private equity strategies, even amid rising interest rates and economic uncertainty. The bank’s $2.25 billion term loan and $2 billion bridge facility highlight its confidence in Sycamore’s ability to extract value from WBA. But this gamble carries risks:
- Interest Rate Exposure: The debt’s floating-rate components could amplify repayment costs if rates rise further.
- Asset Monetization: The $3.00 per share contingent payout tied to WBA’s VillageMD stake depends on selling those assets—a process fraught with regulatory and market risks.

Market Reactions and Regulatory Hurdles

Investors have already priced in skepticism. shows a 12% decline, reflecting concerns over the debt burden and operational challenges. Meanwhile, the “go-shop” period for competing bids expired without interest, leaving Sycamore’s offer as the sole path forward.

Regulatory approval remains uncertain, particularly regarding antitrust concerns in the pharmacy and healthcare sectors. The Federal Trade Commission has scrutinized similar vertical mergers, and WBA’s dominance in prescription fulfillment could invite challenges.

Conclusion: A Risky Bet with Narrow Margins for Error

The Sycamore-Goldman Sachs deal is a high-wire act. On paper, the numbers are daunting:
- Debt Coverage: WBA’s Q2 sales rose 4.1% to $38.6 billion, but its $5.6 billion loss underscores the fragility of its profit margins.
- Equity Cushion: Sycamore’s $2.5 billion stake is minuscule compared to the $18.3 billion debt burden, leaving shareholders exposed to nearly all downside risks.
- Store Closures: Eliminating 1,200 stores—nearly 15% of its U.S. locations—could slash costs but alienate customers and regulators.

For the deal to succeed, Sycamore must execute a flawless turnaround, navigate regulatory approvals, and avoid a liquidity crunch. Historically, such leveraged buyouts often end in bankruptcy or distress sales. Given the stakes, investors would be wise to question whether this is a value play or a dangerous gamble.

In the end, the Walgreens buyout may prove to be a test case for how far private equity can push debt-fueled acquisitions in a slowing economy—and whether Goldman Sachs’ financing prowess can outweigh the risks of a pharmacy chain already teetering under its own weight.