Boots’ shabby stores are not the only disappointment facing suitors

After umming and ahhing for several months, Walgreens, the Chicago-based retailer that owns Boots, last week finally confirmed what the City had known for some time.

Bosses said that they were “reviewing options” for the 173-year-old company. Flanked by Wall Street’s finest, Goldman Sachs, the statement centred around the financial sector’s old euphemism for “this business is up for sale”.

The expected price for Boots is of course being tightly guarded, but a valuation of anywhere between £5bn and £10bn has been touted.

When it comes to ranges, as one investment banker pointed out to me earlier this week, valuations rarely hit the top end and regularly trend towards the bottom. And for Boots such sentiment seems particularly wise.

Seb James, the former Dixons Carphone chief, has done a good job of getting Boots ready for sale since joining in 2018. After years of cost-cutting and underinvestment, Walgreens realised they needed to at least put some lipstick on the pig before it was sent to market.

Tired stores have been spruced up and a rocket has been put under Boots’ online operations. Walgreens says it has invested an eye-watering £2.8bn since it took control of the business in 2014 – though you might struggle to see where that has been spent in some shops.

Boots’ finances appear in half-decent nick too – or at least what we can see of them. Comparable retail sales rose 16pc in its most recent quarter. has doubled in size since the start of the pandemic.

The retailer’s beauty business has also been going gangbusters. Sales of beauty products make-up half of all of those online. And Boots has a towering 40pc of the premium make-up market.

A more detailed assessment is tricky. Boots’ finances are consolidated into its US parent so picking apart the figures any further is nigh-on impossible.

It’s an overused word, but Boots is a unique asset. If you don’t go to Boots, where do you go? The likes of Superdrug and local pharmacies may lay claim to being competitors, but in reality that is all they are: claims. This is a market-leader in every sense of the word.

So with trillions of “dry powder” ready to be deployed by private equity, you would think that Boots would command top dollar from the great and the good of the buyout world.

If Morrisons is worth £10bn and Asda valued at nearly £7bn, one can only wonder what Boots could fetch.

It’s hardly surprising that the likes of CVC (which has joined forces with Bain), Apollo, Advent, KKR, and the billionaire Issa brothers are all having a look. But they may be disappointed when they peek a little closer.

For starters, unlike the supermarkets, Boots does not own many of its shops. It is predominantly a leasehold operation.

Freehold property is appealing to private equity firms because it allows them to stuff companies full of debt. Safe in the knowledge that they would have a lien over tangible assets, banks are willing to lend more and on better terms if companies own freeholds – as evidenced in the auctions for Morrisons and Asda.

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