Office Depot has signed an agreement to acquire information technology (IT) products and services company CompuCom Systems from private equity firm Thomas H. Lee Partners (THL) for around $1bn to diversify its business operations amidst declining sales.
The move is aimed to expand the company’s scope from a traditional office products retailer to a broader business services and technology products platform.
Based on a preliminary estimate of Q3 financial results, the company expects total reported sales to reduce by around 8% for the quarter, with total debt of $285m.
Office Depot CEO Gerry Smith said: “Technology is the office supply of the future. 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.”
The proposed acquisition is expected to add around $1.1bn of revenue and bring cost synergies of more than $40m within two years.
Under the terms of the agreement, Office Depot will offer around 45 million shares of its common stock to THL.
Upon closure of the transaction, the company expects to have financial flexibility with low balance sheet leverage, strong liquidity, and free cash flow that it will use for debt repayment and capital returns to shareholders and growth initiatives.
The transaction will enable the companies to capture market shares in the $25bn tech services and products sector. The company will feature CompuCom’s Tech-Zone across its retail network to improve store traffic and sales.
Image: Office Depot’s corporate headquarters in Boca Raton, Florida. Photo: courtesy of Lizsummers at English Wikipedia.