12 January 2022 Boots Eyed by Two PE Houses

Boots Eyed by Two PE Houses​

What do you need to know this week?

Boots, Britain’s favourite high street chemist, has the eyes of two of the world’s most distinguished private equity groups: Boston-based Bain Capital and CVC Capital Partners, a UK firm.

As far as PE deals go, this is about as early in the deal-making process as it gets. But sources report Bain and CVC are interested in buying out the chemist in a “joint-venture”, which is where each will own a substantial stake in the company.

Boots used to be a public company until KKR took the company private in 2007, in what was the first FTSE 100 company to be taken over by a private equity firm. Walgreens, a large US pharmacist, later took control of the company in 2014. Boots is now part of Walgreens Boots Alliance, a US public company.

Why is this important for your interviews?

If you are interested in corporate law, it helps to stay on top of the City’s M&A gossip.

Even if this deal never materialises, familiarising yourself with it is a good exercise in seeing how well you understand the key drivers of a business and why private equity houses might be interested in acquiring it.

Before the pandemic, Boots had a modest yearly profit of nearly £200m. However, because of COVID-19 lockdowns, it was operating with a loss of £245m. Boots’ parent company, Walgreens, has also had a disappointing couple of years because of the pandemic. Last year, it sold off another part of its business for $6.5bn.

Bain and CVC may want to entice Walgreens to sell Boots at a discount relative to its underlying value. If they can acquire it for a competitive price, they will likely hold onto the company for several years to improve its performance.

You should also note that if this deal comes off, it would be yet another instance of a global PE house buying out UK-based companies. Bain acquired Gail’s, the posh high street bakery chain, last year. Clayton, Dublier & Rice managed to outbid Fortress Investment Group in the acquisition of grocery retailer Morrisons. Fortress acquired booze retailer Majestic Wine in 2019 for £95m.

How is this topic relevant to law firms?

We have discussed before the role law firms play in high-profile M&A and private equity deals. Most of the deals that receive attention are the ones that are either ongoing or have recently closed.

However, even at the earliest stage, companies that are the target of a bid need advice on how to navigate a potential takeover. For instance, corporate governance requires that management act with the shareholders' interest in mind. They are not permitted to recommend to them an offer by a bidder that is not in their interest.

Baker McKenzie advised Walgreens on its US disposal last year of its other business segment, though no firm has been publicly instructed on the Boots matter yet.


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