Office Depot, Inc. is pivoting the company from a traditional office products retailer to a broader business services and technology products platform. As the first step in this new strategic direction, the company has entered into a definitive agreement to acquire CompuCom Systems, Inc., a market-leading provider of award-winning IT services, products and solutions that enable the digital workplace for enterprise, small and midsize businesses. The company also provided a preliminary estimate of third-quarter financial results and a lowered outlook for Office Depot’s standalone business for 2017.
“Technology is the office supply of the future,” says Gerry Smith, CEO of Office Depot. “Today marks a significant milestone as we move to provide a unique business services platform for our current and future customers. Acquiring CompuCom is the first step in this new strategic direction. The combination of CompuCom’s enterprise IT services with our millions of customers and approximately 1,400 distribution points gives us the credibility and scale to build a sustainable platform and stand apart from the competition. The company will create value for shareholders from a diversified revenue base with a clear opportunity to grow higher value services and business-to-business revenues.”
Under the terms of the agreement, Office Depot will acquire CompuCom from Thomas H. Lee Partners, L.P., a premier private equity firm, for a total consideration of approximately $1 billion, which includes the repayment of CompuCom debt and issuance of new Office Depot shares. Following the transaction, THL will hold an equity position in Office Depot of approximately eight per cent of total shares outstanding.
Founded in 1987, CompuCom provides highly-rated managed IT services to businesses with over 5.1 million unique end-users. CompuCom’s team of approximately 6,000 licensed technicians is the largest employee field technician workforce in North America, providing remote and onsite technology support. CompuCom procures, installs and manages the lifecycle of hardware and software for businesses, and offers IT support services including remote help desk, data centers and on-site IT professionals. CompuCom was positioned in the Leaders quadrant of Gartner’s® most recently released Magic Quadrant® for Managed Workplace Services, North America. CompuCom has established long-term relationships with hundreds of blue chip customers, including six of the top 10 Fortune 500 companies, and many small- and medium-sized businesses, including local franchises of national brands.
Compelling Market Opportunity
The combination represents a unique opportunity to bring world-class IT support services to all of Office Depot’s customers, particularly underserved small- and medium-sized businesses (SMBs).
The acquisition of CompuCom is expected to accelerate Office Depot’s ability to enhance shareholder value and pursue topline growth. While Office Depot intends to provide greater detail surrounding the long-term financial impact of the transaction during its next earnings call in November, Office Depot expects to:
- Add approximately $1.1 billion of revenue.
- Deliver expected cost synergies of over $40 million within two years.
- Realize substantial revenue synergies over time as a result of the opportunity for CompuCom to access Office Depot’s multi-channel customer base.
Office Depot has a demonstrated track-record of success in integrating acquisitions and delivering synergies, including over $750 million in cost savings from the OfficeMax acquisition alone.
Office Depot will finance the acquisition with new debt and the issuance of approximately 45 million shares of its common stock to THL. Office Depot expects to refinance CompuCom’s existing debt with a new term loan of approximately $750 million. Following the close of the transaction, Office Depot expects to maintain substantial financial flexibility with low balance sheet leverage, strong liquidity, and positive free cash flow available for debt repayment, capital returns to shareholders and growth initiatives.
Office Depot remains committed to returning capital to shareholders including its current cash dividend plan. The existing share buyback plan authorized by the board of directors remains in place.
“We are focused on building stable and recurring service offerings that leverage our omnichannel platform and deliver the solutions our customers need, and strongly believe it can unlock significant value to our shareholders as we position Office Depot for the future,” says Smith.
This transaction is subject to customary closing conditions, including required regulatory approvals. This transaction is not subject to a shareholder vote and is expected to close by the end of the year.