Sycamore Acquires Staples for $6.9 Billion in Largest Buyout of the Year

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Sycamore Partners announced on Wednesday that it would acquire chain retailer Staples. Sycamore will pay $10.25 a share in cash for Staples, which finished trading Wednesday at $9.93. This price represents around a 20% premium from where the shares were trading in April, before it was announced by the WSJ that Staples was exploring a sale. According to Deallogic, this deal will be the largest leveraged buyout of the year in the United States.

Sycamore has made deals in the retail sector before, previously investing in department store chain Belk Inc, discount merchandiser Dollar Express, and retailer Hot Topic. However, this is still a bold move, as online buying has continued to eat away at brick-and-mortar's market share. Also, regardless of sector, private equity activity has been subdued as stretched valuations have made companies relatively expensive.

However, around two-thirds of Staples business comes from corporate and government business, which is seen as a more stable revenue source than the consumer market. Also, only a minority of Staples products are being sold at brick-and-mortar outlets, with $10.6 billion of their sales being delivered to customers as opposed to $6.6 billion sold in stores. Even still, sales and gross profits have fallen for each of the last four full years and the number of stores Staples operates has been in steady decline.

That being said, Staples only has around $1 billion dollars in debt, compared to their $18.2 billion in revenue. It seems that the company can survive the additional debt added to their balance sheet as a result of the buyout, a critical piece in future success of Staples. Sycamore should have an easy time cutting costs and streamlining operations, if they decide to go the route of many PE firms before them. However, another option would be to revitalize a merger with Office Depot that was previously shut down by antitrust regulators during the last years of the Obama administration. This would be on the first true test of the Trump administrations with regards to antitrust policy.

According to Reuters

Barclays and Morgan Stanley & Co. LLC are acting as financial advisors and Wilmer Hale LLP is acting as legal advisor to Staples. BofA Merrill Lynch and Deutsche Bank Securities Inc are acting as financial advisors and Kirkland & Ellis LLP is acting as legal advisor to Sycamore Partners.

UBS Investment Bank, BofA Merrill Lynch, Deutsche Bank, Credit Suisse, Royal Bank of Canada, Jefferies, Wells Fargo Bank, National Association and Fifth Third Bank are providing debt financing for the deal