More than a year after its failed merger with chief rival Office Depot that led to the resignation of then-Chairman and CEO Ron Sargent, Staples has agreed to sell itself to the private equity firm Sycamore Partners for approximately $6.9 billion, or $10.25 per share in cash. The transaction is subject to regulatory and stockholder approval, and is expected to close no later than December 2017.
The office supplies retailer has seen sales and store traffic sputter in recent years — enduring 14 straight quarters of same-store sales declines — and has struggled to differentiate its basic retail offerings as e-Commerce continues to thrive.
Whether Staples was selling office supplies, school supplies, computer hardware and software, printers or stationery, it had what was then considered a unique product positioning during its massive growth phase in the 1990s and early 2000s. Competing brands such as Office Depot and Office Max also expanded during this time, creating three major players within the office supplies vertical.
But as Best Buy started to become the go-to stop for tech products and Walmart sold more of the same items as the office supplies retailers, Staples and its competitors lost their differentiation advantage and ultimately suffered in the long run. Once Amazon entered the fray and other e-Commerce retailers began to sell many of the same products in an even more convenient fashion, shoppers had little reason to step into a Staples store or even go to its web site.
The downfall of Staples (and its competitors) is a lesson to retailers that there is always an opportunity for another player to disrupt a sector, and that the only way to combat this is by evolving the shopper experience. Staples not only failed to differentiate its product offerings; it also maintained a very basic in-store experience. Other than offering printing and tech support services, Staples stores largely consist of the merchandise being sold — and not much else that would stand out from any other experience.
Sycamore Bets On B2B
While Staples has shown weakness on the retail side, Sycamore Partners appears to be betting on the potential it sees in the company’s B2B delivery unit, Staples Business Advantage. The unit has been a lone economic bright spot for the Staples brand, supplying office products and expert services directly to businesses within retail, health care, education, banking and finance.
Sycamore Partners specializes in retail and consumer investments, and has scooped up the likes of Belk and the assets of now-defunct The Limited. The company’s portfolio also includes retailers such as Hot Topic, Nine West and Talbots, but Staples is the firm’s biggest bet thus far.
The transaction embodies a growing trend where more private equity companies are seeking to buy out retail properties at a low value.As many as 92% of private equity execs expect their companies to drive greater or equal M&A activity within retail in 2017, according to a survey from A.T. Kearney. With so many retailers declaring bankruptcy throughout the year, however, any acquisition will carry its fair share of risks.
Shareholders of the office supplies retailer are happy with the news — Staples stock jumped 8% in after-hours trading on June 28, 2017, marking the company’s biggest one-day gain since April 4.
Staples initially had rejected a takeover offer from Cerberus Capital Management in May because it was too low, according to a report from Bloomberg. Barclays and Morgan Stanley are acting as financial advisors to the retailer.
Despite its poor performance, Staples still has the largest share of office supply stores in the U.S. at 48%, according to Euromonitor.