Staples Acquisition Continues The Retailer's Ongoing Business Transformation

Office supply retailer Staples, which has pushed into business services over the last year, can now do so without the glaring spotlight that is usually aimed at publicly-held companies. Staples is being sold to a private equity firm that focuses on reviving retail brands

The $6.9 billion deal – or about $10.25 per share - is expected to close later this year, subject to approval by Staples stockholders and regulatory agencies, according to a statement from Staples.

Framingham, Mass.-based Staples provides such technology services as managed print, data center management and migration, and mobile device management and deployment as a way to offset its core retail office supply business. 

Those services were supplemented eight months ago, when Staples announced a partnership with a web-based technology platform provider, Managed by Q, to connect businesses with an array of services that can help them run their offices, including technology support and security.

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Staples did not reply to a request for comment.

Service providers contacted by CRN agree that it's challenging for a company to push into the competitive business services market, even if it has a well-known retail brand. 

"It's extremely challenging to build a market presence because much of the market presence is based on your past performance and referral business," said Brian Hanify, director of sales and marketing at Akuity Technologies, an MSP based in Auburn, Mass. It's also expensive on the marketing side to "get your name well known" and tell potential clients you're out there.

"I know people have always thought Staples was a competitor to companies like ourselves," added Guy Baroan, founder of Baroan Technologies, of Elmwood Park, N.J. However, he added, "I don’t think that Staples has been any kind of competition" for his firm.

Nonetheless, Hanify believes there is room for Staples in the managed services market.

Hanify said the Staples model can work in the "small office, home office" or SOHO market, which includes companies with about one to five employees that don't need as much attention as a large enterprise.

In fact, Hanify said, Akuity will refer a business to Staples if its request is straightforward and would cost it less. "We try to be honest with folks and get them the best value possible," he told CRN.

In its most recent quarterly report, Staples said its midmarket sales for its Business Advantage program, which provides the company's mobility-related services throughout North America, grew 10 percent year-over-year, and predicted more growth ahead, the company said. 

The company's strategy includes reducing its retail footprint as it sells more products and services online. Staples officials said the company was planning to close 70 stores this year while evaluating its entire store portfolio "on an ongoing basis as performance and market conditions change."

The acquisition by Sycamore comes a little over a year since a federal judge blocked a proposed $6.3 billion merger between Staples and chief rival Office Depot. The judge had upheld a ruling by the Federal Trade Commission (FTC) that the deal raised antitrust concerns. As the office supply retail market was losing ground to online alternatives, Office Depot had purchased rival Office Max in 2013, Staples and Office Depot were left as the two giants in the space. But in 2015, Staples and Office Depot agreed to their ill-fated merger.

“The Sycamore Partners’ team shares Staples’ entrepreneurial spirit and long-term vision,” Staples CEO Shira Goodman said in a prepared statement. “This transaction will enable us to drive greater value for our customers and immense opportunity for our business.”

In the same statement, Stefan Kaluzny, managing director at New York-based Sycamore Partners, said his company plans to "accelerate long-term profitability" for 31-year-old Staples. 

Sycamore's portfolio includes such notable retail brands Coldwater Creek, Nine West, Dollar Express, and the Belk department store chain, based in the Southeastern U.S. Earlier this year, it acquired The Limited brand and other related intellectual property assets at auction after the company filed for Chapter 11 bankruptcy protection.

Staples' financial performance has been sinking steadily over the last four years. Its revenue, $24.4 billion for its 2013 fiscal year, fell to $21.1 billion in fiscal 2016 and was on pace to fall to $18.25 billion this fiscal year, according to data on Marketwatch.com. And after three straight years of profitability, the company was looking at a net loss of $459 million, according to Marketwatch.

Wall Street reacted positively to the announcement of the proposed acquisition. Staples' stock had risen close to 10 percent in trading today on the Nasdaq exchange after closing Wednesday at $9.22 per share. It closed Thursday at $10.08.

"We've never felt competition from Staples," added Thomas Flesch, CEO of Gordon Flesch Co., a provider of managed services – including print – based in Madison, Wis. He cited businesses' need to have a service provider that can provide much more than basic services, such as managing meters and finding ways to reduce costs and streamline printer assets.

"It's not a simple business to get into; it's more complicated," Flesch said.

 

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