Pharmacy businesses are essentially specialized stores and are valued as a multiple or percentage of the gross revenues they generate.
Walgreens, one of the world’s biggest pharmacy chains, primarily present In the USA, acquired Alliance Boots with a presence across 25 countries to form the world’s largest pharmacy chains
Walgreens first acquired a 45% stake in Alliance Boots with a call option to buy the balance 55% stake at a date over 2 years later for a pre-agreed consideration. Walgreens exercised the call option and eventually bought the remaining 55% of Alliance Boots.
Keeping in mind that 21.5 bn dollars is the market value of shares and to calculate the enterprise value of the transaction we add the net debt of alliance boots to result in 26.6 bn dollars.
Comparing Alliance boots with listed data of large pharmacy chains we can see that higher revenue multiple is given to higher gross margin% and larger pharmacy size.
Considering the total value paid by Walgreens across both parts, the valuation is 62% of sales which is not in line with observations from the peer valuations.
But keep in mind that the two parts occurred in different years at different market prices. Logically, Part 2 value should represent the business value at the time of the transaction.
The 100% equivalent enterprise value derived from the part 2 transaction consideration matched the mean enterprise value to revenue multiple from our peer group.