Revamped Boots could be just the right tonic for canny investors

THOSE of us of a certain age will remember the time when there was a hard border between the North and the Republic — and the phenomenon of shopping expeditions to the North.

People went in their droves to shop in stores which simply weren’t in the Republic. One such retailer was Boots. At that stage, pharmacy chains were not permitted under Irish law.

Nowadays, we have several Boots stores. However, this bastion of British retailing is no longer controlled from a headquarters in London (or anywhere else in Britain for that matter) but is, in fact, run from Deerfield, Illinois by the US pharmacy giant, Walgreens.

In 2006, Boots, then listed on the UK FTSE 100 index, merged with a Swiss company, Alliance UniChem to form Alliance Boots. Less than a year later, this was bought by Kohlberg Kravis Roberts and Stefano Pessina, taking the company private, and making it the first-ever FTSE 100 company bought by a private-equity firm.

In 2012, Walgreens bought a 45pc stake in Alliance Boots, with the option to buy the rest within three years — an option it exercised in late 2014 — and the new company was named Walgreens Boots Alliance.

At the time of the deal, the Alliance Boots chairman, Stefano Pessina, known as a deal-maker and successful consolidator of businesses, was seen as the architect of the Walgreens/Alliance Boots transaction. Pessina is now chief executive and has helped appoint a leadership team heavily skewed toward Alliance Boots management.

Although the merger created a global business, the company still makes the majority of its profits in the US. The international business is important, as it diversifies growth, increases global purchasing scale and provides an avenue for Walgreens to better capture opportunities by leveraging Boots’ strength in health and beauty.

The company has changed its retail strategy to focus on the total profitability of a customer, rather than making a fixed profit margin on every single product or service.

To achieve this, it has upgraded the interior decor of stores, improving the customer experience and the ease of shopping in the hope that this results in a larger number of items being purchased by the customer on each visit.

Coupled with this strategy is the measured roll out of the health and beauty offering within the US store network. With its long history, Boots has established a trusted brand reputation with deep customer loyalty, thereby creating a health and beauty destination for customers focused on differentiated brands (such as No.7 skincare) and trusted private-label products (Boots Pharmaceuticals).

At the time of the Walgreen Boots Alliance deal, management laid out cost-synergy targets amounting to $1bn (€0.88bn) driven by savings in global procurement and best-practice operations implementation. They achieved this target by June 2016 and have stated that they see the potential for more synergies in the years to come.

A huge amount of work has been done behind the scenes since the merger was finalised. Management is applying what was learned in the original Boots takeover and putting in best practice without referring to lots of expensive consultants.

While retail pharmacy might not be the drug to get your heart racing, Walgreen Boots Alliance could be the right prescription for your investment portfolio. Aidan Donnelly is head of equities, Davy Private Clients. For disclosures, visit www.davy.ie/AidanDonnelly. Any investment advice in this column is from the author directly and should not be seen as a recommendation from the Sunday Independent