Office Depot has entered into a definitive agreement to acquire CompuCom Systems, as the retailer aims to pivot from being a traditional office products retailer to a broader business services and technology products platform.
CompuCom provides information technology services, products and solutions for enterprise, small and midsize businesses. Under the terms of the agreement, Office Depot will acquire CompuCom from private equity firm Thomas H. Lee Partners for a total consideration of $1 billion, which includes the repayment of CompuCom debt and issuance of new Office Depot shares. Following the transaction, THL will hold an 8% equity position in Office Depot.
Office Depot noted that integrating CompuCom will position the combined company to capture market share in a $25 billion, highly fragmented market to provide a nationwide, comprehensive network of enterprise-level tech services and products. The combined company will offer end-to-end IT services through 6,000 salaried, certified technicians nationwide and top-tier cloud and data centers.
The CompuCom model will fit within Office Depot’s omnichannel platform with a last-mile footprint that offers access to nearly six million small to medium sized businesses within three miles of its approximately 1,400 stores. Office Depot will position CompuCom’s established offering, Tech-Zone, within its nationwide retail footprint, providing immediate scale and driving traffic into stores. Added services revenue and increased foot traffic will improve per-store profitability, and CompuCom sales teams can capitalize on minimal customer overlap to quickly begin cross-selling a full suite of products and services, with an incentive structure focused on driving services revenue.
Office Depot expects the acquisition of CompuCom to accelerate its ability to enhance shareholder value and pursue topline growth, while adding about $1.1 billion of revenue, delivering expected cost synergies of over $40 million within two years and realizing revenue synergies over time as CompuCom accesses Office Depot’s multi-channel customer base.
“Technology is the office supply of the future,” said Gerry Smith, Office Depot CEO. “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 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 transaction is subject to customary closing conditions, including required regulatory approvals. It is expected to close by the end of the year.