Private equity firm Sycamore Partners is on the brink of acquiring Staples (SPLS), the world's largest office supply company, in a deal that could top $6 billion, according to Reuters.
Sycamore, which specializes in buyouts of small to middle market retail firms, is currently in the process of finalizing a debt financing package to purchase Staples after it outbid rival Cerberus Capital Management for the company at an auction. The acquisition is expected to be announced as early as next week, although negotiations are still ongoing, meaning that Sycamore’s bid to convince Staples to go private could still fall apart.
Staples, whose shares rose 5 percent when news of the bid first broke, has been exploring a sale ever since its merger with Office Depot (ODP) was blocked on antitrust grounds last year. A U.S. federal judge decided that a tie-up between the two companies would have created an unrivaled giant, forcing Staples, which has come under threat from rising competition from web retailers such as Amazon (AMZN), to seek out other potential suitors.
In May, Cerberus Capital Management emerged as the front runner to secure the retailer. However, the private equity firm’s bid, which reportedly valued the company above its then-market valuation of roughly $5.8 billion, was swiftly rejected, according to Bloomberg. (See also: Private Equity Firms Consider a Buyout of Staples.)
Sycamore's Retail Strategy
Reuters's sources claim that Sycamore is keen to widen Staples reach, pushing the office stationary giant to sell its paper, pens and other supplies to companies, on top of the consumers it currently serves. Sycamore, whose previous investments in the sector include regional department store operator Belk Inc., discount general merchandise retailer Dollar Express and mall and web-based specialty retailer Hot Topic, is one of the few private equity firms that has been able to make a success out of retail companies.
Many private equity firms actively avoid the sector, arguing that rising competition and falling sales across the industry make big leveraged buyouts of retailers a risky business. These concerns have been heightened by the bankruptcies of private equity-backed retailers, such as Payless ShoeSource and Sports Authority, in the last two years. (See also: Staples (SPLS) Q1 Earnings Meet, Sales Miss, Guides Q2.)