THE SET-UP: A notable item got lost in the barrage of Musk-related news over the last 36 hours:
Musk taps private equity veterans to aid DOGE at Social Security
It first appeared on Bloomberg, but quickly moved to the backburner … and understandably so. DOGE onboarding three PE privateers is chump change when compared to Telsa’s crashing stock, a cyberattack on the website formerly known as Twitter and Musk’s admission to FOX Business’s Larry Kudlow that his white whale is the end of entitlements. Apparently, though, that last thing is a misrepresentation of what Musk *meant* when he said, “Most of the federal spending is entitlements. That’s the big one to eliminate.” Supposedly, Musk was talking about eliminating “waste, fraud and abuse.”
At least, that’s White House Spokesperson Karoline Leavitt’s story and she’s sticking to it. And she should, because Social Security recipients (a.k.a. “reliable voters”) get nervous when Musk or Trump launches into one of their lie-filled riffs about rampant fraud perpetrated by phony sesquicentennarians. The lie is told in spite of ample evidence it is not true, and that leads one to ponder the sinister motives behind the lie. It does feel like the public is being coated in primer … with the topcoat being cuts to and/or privatization of Social Security and Medicare. That’s why we shouldn’t sleep on Musk moving three privateers over the Social Security Administration:
Among those tapped for the task are Antonio Gracias of Valor Equity Partners, who also served on the board of Tesla Inc. and was an early investor in SpaceX — two of Musk’s companies — as well as Scott Coulter, formerly of Lone Pine Capital, and Michael Russo, formerly of Shift4, according to people familiar with the moves who spoke on condition of anonymity to discuss them.
Russo, who “introduced himself as a DOGE representative to multiple employees on multiple occasions,” also “brought on Akash Bobba, a former intern for Peter Thiel’s Palantir Technologies Inc., to analyze Social Security data.”
Other than data analysis, we are left to extrapolate the scope of their mission from their LinkedIn bios … because a “spokesman for the Social Security Administration did not respond to questions about DOGE’s work at the agency.”
So what does it all mean?
Since DOGE is operating behind a wall of protective opacity, we can look at what it is private equity does and has been doing. CNN’s new story on a private equity takeover of Walgreen’s explained the privateering business this way:
The private equity business model often relies upon forcing the company to take on massive amounts of debt to give the greatest possible return to the private equity firm, with the long-term survival of the business often not a priority. The debt is often used to pay “special dividends” to the firm itself to cover the initial purchase price, as well as heavy “management fees” placed on the company, to be paid to the private equity firm. Many times brick-and-mortar retail chains have been forced to sell off the buildings that house their stores and pay rents that they can’t afford to new owners, leading to even more store closings and layoffs.
Back in the 1980s they were called “corporate raiders,” but the business hasn’t changed much. One difference is the practice of “rolling up” a number of companies in the same business … like dental practices. Private Equity is buying dentists and roofers and daycare centers and car washes and bowling alleys and so on. If anything epitomizes the triumph of the supply side it’s the fact that they have so much capital … they just started collecting car washes.
On the flipside of the roll-up is the pick-apart … lowering overhead and “trimming the fat” until there’s nothing left but a stripped-down carcass and the final payoff when the bones are stuffed down the garbage disposal. Private Equity has rolled-up and parted-out hospitals and healthcare systems… and left many of ‘em bankrupt … after the wealth was extracted, that is. There’s not much to extract from Social Security, but I wouldn’t bet against them using “waste, fraud and abuse” as a cover story for “finding “efficiencies” and “trimming the fat” and setting the table for the House to justify Trump’s tax cut with some key reductions and the use of Elon-generated A/I to do some of the worker once done by human beings. - jp
TITLE: Walgreens to Be Acquired by Sycamore Partners: Where Did the Retail Giant Go Wrong?
https://medcitynews.com/2025/03/walgreens-sale-private-equity/
EXCERPTS: Walgreens has long been a staple of American life, with about 8,500 stores across the U.S. and Puerto Rico and reaching some of the most underserved communities.
But after a series of headwinds — including a net loss of $8.6 billion in fiscal year 2024 and the closure of numerous VillageMD clinics — Walgreens Boots Alliance announced late last week that it is selling itself to private equity firm Sycamore Partners for about $10 billion. The total value of the deal is $23 billion including debt and other items. It comes after rumors of the deal emerged in December.
So where did the company go wrong, whereas competitors like CVS Health seemed to have fared better? One consultant noted that Walgreens tried numerous strategies, including expanding into Europe with its purchase of Alliance Boots and entering primary care by acquiring part of VillageMD. But the fact is that the pharmacy business is a “mature one with flat margins in the core function of dispensing prescription drugs,” said Michael Abrams, managing partner of Numerof & Associates.
He added that the business landscape has been changing, with consumer shopping habits shifting to online companies like Amazon, Hims & Hers and Ro. And while CVS has found success through its pharmacy benefit manager Caremark, Walgreens missed the boat on acquiring its own PBM, which would have helped.
“Unfortunately, management never really found a way to restore profitability, perhaps because most of the efforts it made at change were intended to bring traffic back into the stores, and that was, by itself, not the answer,” Abrams said in an email. “The merchandise on offer had been driven down in profitability by competition and, more importantly, was no longer an adequate attraction to consumers, who had multiple options for that same merchandise.”
One just needs to look at Sycamore Partners’ past track record to see what could be ahead for Walgreens.
The private equity firm has a history of bankruptcy and OSHA violations among its portfolio companies, which includes retail stores like Nine West and Staples, according to Matt Parr, communications director of the Private Equity Stakeholder Project, a nonprofit that has been tracking private equity moves.
“All we really have to do is look at Sycamore Partners’ past operations, and that calls a lot of things into question for the way they’ve operated their past portfolio companies,” Parr argued in an interview. “In addition, Walgreens is still a staple in healthcare services. People rely on it. And what we found is many times, the private equity business model, which focuses on short-term profits, is contradictory to the healthcare industry’s goal, which is long-term care.”
Others have a less skeptical view, however, and believe this deal and going private could help Walgreens turn things around.
This includes Howard Gutman, private equity strategy and coverage lead for MorganFranklin Consulting.
“One thing that will help them is that they won’t have the pressure of quarter-to-quarter growth,” he said. “The PE firm is probably developing some strategy to generate cash, which could be done by evaluating and selling off parts of its business. Then, they can focus on the long-term growth of the core business. Having a multi-year hold period allows them to emphasize and drive the evolution of their business. After that, they can make some significant changes and then realize the results through whatever route they think is best.”
Walgreens likely agrees that Sycamore Partners will be able to help the company bounce back.
“While we are making progress against our ambitious turnaround strategy, meaningful value creation will take time, focus and change that is better managed as a private company,” said Tim Wentworth, CEO of Walgreens Boots Alliance, in a statement. “Sycamore will provide us with the expertise and experience of a partner with a strong track record of successful retail turnarounds.”
TITLE: Private Equity Acquisition of Walgreens Raises Concerns Over Patient Care and Financial Stability
https://hitconsultant.net/2025/03/10/private-equity-acquisition-of-walgreens-raises-concerns/
EXCERPTS: The recent announcement of private equity firm Sycamore Partners’ acquisition of national pharmacy giant Walgreens has sparked significant concern, particularly from the nonprofit watchdog Private Equity Stakeholder Project (PESP).
PESP highlights the substantial risks associated with private equity investment in the healthcare sector, which has seen over $1 trillion in investments in the past decade.
PESP’s findings reveal a disturbing trend: private equity firms were behind 56% of large U.S. corporate bankruptcies in 2024. In the healthcare sector specifically, private equity-backed companies accounted for 21% of bankruptcies in 2024, a figure that remained unchanged from 2023. More concerningly, 88% of the largest healthcare bankruptcies in 2024 involved companies with a history of private equity ownership.
PESP raises specific concerns about Sycamore Partners’ track record, citing instances of bankruptcies at portfolio companies like Belk and Nine West. The firm has also faced fines for health and safety, wage and hour, and environmental violations.
On the 2023 PESP Private Equity Labor Scorecard, Sycamore Partners received a failing grade, reflecting concerns over workplace safety and labor practices. The firms portfolio companies have a history of serious OSHA violations, and lack any union presence. For example, Staples, a Sycamore owned company, has accrued 32 OSHA violations since acquisition.
The acquisition of Walgreens by Sycamore Partners raises concerns about the potential for:
Compromised patient care: Cost-cutting measures could lead to reduced staffing, limited access to medications, and diminished quality of care.
Increased bankruptcy risk: Sycamore Partners’ history of bankruptcies at portfolio companies raises concerns about Walgreens’ financial stability.
Worker safety concerns: Sycamore Partners’ track record of OSHA violations raises concerns about workplace safety for Walgreens employees.
Job losses: Private equity-driven restructuring could lead to layoffs and store closures.
TITLE: Why Private Equity Healthcare Dealmaking Is Expected to Rise in 2025
https://www.healthleadersmedia.com/ceo/why-private-equity-healthcare-dealmaking-expected-rise-2025
EXCERPTS: Healthcare deals by private equity firms in 2024 declined 7.6% year over year, but still produced 1,049 transactions, a study by the Private Equity Stakeholder Project revealed.
Dealmaking is expected to pick up in 2025 as interest rates come down and antitrust scrutiny cools off under the Trump administration.
Private equity firms will likely continue to utilize joint venture partnerships, which bring less regulatory scrutiny while being a viable growth strategy.
Following a steady, but modest, year of private equity dealmaking in healthcare, 2025 could see higher levels of activity as market conditions shift.
Analysts forecast an increase in transactions due to falling interest rates, a more favorable regulatory environment under the Trump administration, and dry powder available to invest, according to a report by the Private Equity Stakeholder Project (PESP).
In the face of high interest rates and ramped-up regulatory scrutiny in 2024, 1,049 unique deals were completed by private equity firms last year, which marked a 7.6% decline from the 1,135 deals tracked in 2023, the study found.
Of the deals made in 2024, 166 were buyouts, 262 were growth/expansion investments, and 621 were add-on acquisitions to 383 unique platform companies.
The subsectors that experienced the highest activity were dental care with 161 deals, health IT with 140 deals, outpatient care with 139 deals, medtech with 105 deals, pharma services with 80 deals, home health, home care, and hospice with 73 deals, and behavioral health with 65 deals.
Meanwhile, regulatory scrutiny picked up during the Biden administration as lawmakers put the spotlight on potential consequences of private equity ownership, including increased prices and lowered care quality.
A bipartisan report from the Senate Budget Committee released in January detailed how two private equity firms negatively impacted two hospital operators.
However, "it is unlikely that inquiries, investigations, and regulatory efforts undertaken by various federal agencies during the Biden administration to better address private equity in healthcare will carry into the Trump administration, which is moving to reduce the federal bureaucracy and workforce and pursue deregulatory priorities," PESP said.
The Federal Trade Commission's recent settlement with Welsh, Carson, Anderson and Stowe could foreshadow how the agency approaches private equity ownership going forward under new chair Andrew Ferguson.
Private equity firms can further avoid antitrust scrutiny by engaging in joint venture partnerships rather than traditional mergers and acquisitions, especially when the partnership combines nonprofit health systems with for-profit entities, the report noted. Joint ventures also allow private equity firms to access new markets through trusted organizations to achieve growth.