The deal underscores Sycamore’s strategic discerning ability to pick up a healthy company from a basket of bankrupt-laden ones.
On Wednesday, Sycamore Partners stated it would go ahead and acquire U.S. office supplies chain, Staples Inc for a cool $6.9 billion.
The deal underscores a rare bet made by a private equity firm in the U.S. retail sector which has been largely roiled by the popularity of online shopping.
In the last two years, buyout firms have largely refrained from attempting leveraged buyouts of U.S. retailers given the fact that the sector witnessed frequent bankruptcies, including BCBG Max Azria LLC, Sports Authority, Rue21 and Gymboree.
Sycamore’s acquisition of Staples however stands as an exception and illustrates the fact that buyout firms are distinguishing between mall-based fashion retailers, who are vulnerable to changing consumer choices, from niche retailers who have a steady cash flow, such as Staples.
The deal also highlights Sycamore’s risk appetite as it is willing to acquire a retailer at a time of falling store sales.
Sycamore disclosed it would be paying $10.25 per share in cash for every Staples’ share. With the news hitting the market, the company’s shares hit $9.93 on Wednesday.
Staples stated the deal is expected to close by December 2017.
Sycamore has retained Shira Goodman as Staples’ CEO.
As per a source, Sycamore is set to re-organizing Staples along 3 verticals: its Canadian business, its stronger delivery business and its weaker retail business. This strategy will provide Sycamore the flexibility to shed Staples’ retail business in the future.
As per Euromonitor, Staples has captured 48% of the office supply market in the US and generated $889 million of adjusted cash flow in 2016.
Morgan Stanley & Co LLC and Barclays acted as Staples’ financial advisors while Wilmer Hale LLP acted as its legal advisor.
Deutsche Bank Securities Inc and BofA Merrill Lynch acted as Sycamore Partners’ financial advisors while Kirkland & Ellis LLP acted as its legal advisor.
Deutsche Bank, UBS Investment Bank, Credit Suisse, BofA Merrill Lynch, Royal Bank of Canada, Wells Fargo Bank, Jefferies, National Association and Fifth Third Bank are providing debt financing for the deal.