Financial Information ($USD)

• Transaction Value: ~ $305 million
• Enterprise Value: $1.72 billion
• EV/LTM Revenue: 0.19x
• EV/LTM EBITDA: 3.85x

 Transaction Details

• The ODP Corporation (NASDAQ: ODP) announced that it has sold its CompuCom Systems subsidiary to an affiliate of Variant Equity in a transaction valued up to $305 million.
• The transaction consideration of up to $305 million consists of a mix of cash, an interest-bearing promissory note, and a contingent future earn out.
• The acquisition of CompuCom Systems marks Variant Equity’s first move into the managed services space. The Los Angeles-based firm focuses on pursuing corporate divestitures and other operationally-intensive transactions.
• Office Depot’s Board of Directors also announced that it is authorizing a $200 million increase to its existing $450 million stock repurchase plan.

 martinwolf Analysis

• Colossal Loss: Office Depot acquired CompuCom Systems for a price tag in excess of $1 billion in 2017 and sold the company to Variant Equity for no greater than $305 million, resulting in a $700+ million loss.
• High Risk, No Reward: When Office Depot initially bought CompuCom Systems it was a risky move due to the lack of synergies between the two organizations. While both companies share some partners, Office Depot operates in the lower-end retail space working mainly with purchasing departments. On the other hand, CompuCom Systems focuses on enterprise solutions where it calls on IT departments and technology-focused executives. The incompatibilities of the two firms resulted in poor financial performance and losses of key management.
• Then & Now: The 2017 acquisition did not position Office Depot to be the market leader the company hoped it would be. Office Depot’s Enterprise Value was $2.64 billion in October of 2017. Today the company’s EV is $1.72 billion, representing a loss of almost 35% or $920 million.
• Searching for Strategic: Office Depot retained the services of Goldman Sachs to shop CompuCom Systems. They were unable to identify to a strategic buyer that could generate synergies by leveraging CompuCom’s vendors, customers, and operations. Variant Equity, the eventual acquirer, is an inexperienced private equity buyer.
• Market Reaction: Office Depot’s stock is up six percent following the announced stock buyback and disposing of this line of business.

For more information about this transaction, click here to read the press release from Office Depot.

*Financial information from the press release and FactSet.

martinwolf was not the advisor in this transaction.