Friday, July 13, 2007

The British are Coming?

Keep an eye on Alliance-Boots, Europe's biggest retail pharmacy and drug wholesaler.

After some boardroom machinations this week, Stefan Pessina is now firmly in charge of Alliance-Boots. See Baker goes as Pessina takes charge after coup at Boots (Times London) or Alliance Boots CEO Resigns (Wall Street Journal).

As you may recall, A-B was formed when Alliance Unichem, Europe's biggest drug wholesaler, merged with Boots, the UK's largest pharmacy retailer. Alliance-Boots was taken private in a leveraged buyout financed by Kohlberg Kravis Roberts and led by ... Stefan Pessina, who was also the driving force behind Alliance-Unichem.

Once the dust settles, what's next?

I predict that the drive for consolidation within the pharmacy supply chain plus private equity's need for mega-deals will lead Alliance-Boots to create a global pharmacy wholesaler and/or retailer within the next three years. Thus, I would not be surprised if:

1. Boots opens in the US -- Boots launched in North America in 2004 and currently sells its products in Target, CVS, and Shoppers Drug Mart stores. While there are no standalone Boots stores here, the brand is starting to become known by consumers. I wonder if CVS will one day regret its decision to let Boots get their, um, foot in the door here. (Doh!)


2. Alliance-Boots acquires a US Wholesaler -- As I pointed out in April, Pessina has wanted to create a global pharmaceutical wholesaler for some time, so this is also a credible scenario. The big 3 have strong cash flow and minimal debt, making them catnip for private equity firms. But valuations remain relatively high, so it's hard to put a deal together. A change in sentiment could make the numbers work, especially given the not-so-obvious but still substantial restructuring opportunities in the US wholesaling industry.

Keep in mind that this is all pure speculation. And please don't complain if I'm wrong -- free advice is worth what you pay for it.

1 comment:

  1. AnonymousJuly 14, 2007

    Adam, if importation ever passes a global wholesalers would have a huge advantage. Likewise, a global retailer would have similar advantages.

    Thanks for keep us posted.