decor decor
"The only limits are, as always, those of vision."

-James Broughton

Office Depot and OfficeMax to Merge in Stock Swap Valued at $1.2 Billion

The #2 and #3 retail office supply chains have been struggling for years to compete with the sector leader, Staples. At the same time, all three are suffering from increased competition from web retailers and discounters.

 

That’s one reason why the market reacted favorably to the news that Office Depot and OfficeMax intend to merge, creating a $18 billion retail office chain company that could potentially be a stronger competitor to the #1 market leader, which posted revenue of nearly $25 billion last year, and to the myriad new competitors in the space.

 

Staples Easy ButtonOf course, the new management team of the combined company would need to execute on the merger. There are early signs that neither company has yet thought that through, which has given some investors pause. After the merger was announced, the stock prices of all three companies rose, but have since retracted somewhat.

 

But the economics of the merger are compelling.

 

None of the three companies has managed to increase enterprise value in the last decade — despite the fact that Staples grew its revenue 140 percent and OfficeMax increased its gross margins from 19 percent to 26 percent. Key financial metrics for Office Depot have remained essentially flat.

 

Still, with cost efficiencies possible by combining Office Depot and OfficeMax, the new company could emerge at twice the level of profitability the two companies delivered combined between them in 2012. Shareholders would be very happy if that happened.

 

Beyond the financials, a combined new entity could be in a strong position to move up the value chain, offering its small-to-medium-sized customer base new products and services. It could also be an attractive partner to technology solutions providers seeking new channels — in much the same way Apple anointed Staples over Office Depot and OfficeMax.

 

For a more complete analysis of the financials and future prospects of a new kid in the neighborhood, read Marty Wolf’s article on the proposed merger, published in Yahoo! Finance on February 21, 2013.

previous post Back to Articles next post

09 May 2023

DynamicsCon LIVE Conference Information

martinwolf will be attending the DynamicsCon LIVE conference in Scottsdale May 22-25. Book a confidential one-on-one meeting with Michael Rosholt to learn about market trends, current valuations, and how to prepare for a sale.    DynamicsCon attendees are also eligible for a complementary M&A Readiness Scorecard from martinwolf.   Contact Michael Rosholt at mrosholt@martinwolf.com to...

22 Feb 2023

How Microsoft Channel Partners Can Command High Valuations

In today’s rapidly changing ecosystem, simple organic growth doesn’t give Microsoft Channel Partners long-term competitive advantage.   During the last five years, Microsoft Channel Partners have commanded high valuations due to strong and sustainable business models, as well as a track record of profitability. Most were small mid-market businesses that had to decide to be...

31 Jan 2023

Rising Interest Rates Chill Private Equity Pace

After a year of strength on the private equity front, 2022 is now in the rearview mirror and industry professionals anticipate a downgrade in performance for the coming year.   Despite the fluctuations of the past few years, private equity has withstood the challenges relatively well. However, in certain areas such as exit activity and...