Office Depot buys IT firm CompuCom and shifts focus

Dive Brief:

Office Depot on Tuesday announced that it has agreed to acquire IT provider CompuCom Systems for $1 billion. The company said the move was part of a pivot from being a traditional office products retailer to a "broader business services and technology products platform."
As part of the deal, Office Depot will buy out private equity firm Thomas H. Lee Partners' stake in CompuCom as well as CompuCom's debt, which the retailer said it expects to refinance with a new $750 million term loan and new Office Depot shares, according to a company press release. After closing, THL would hold some 8% of Office Depot's total shares outstanding.
Office Depot also released guidance for the third quarter, saying now it expects total sales to decline 7% to 8% and same-store sales to decline between 5% and 6%. The retailer expects adjusted operating income of $125 million to $135 million. Office Depot also adjusted its fiscal year expectations downward, with income for the year now estimated at between $400 million and $425 million, down from its previous estimate of about $500 million.

Dive Insight:

Just when Office Depot seemed to be sticking with retail sales, the company is now pursuing a new growth strategy, that, like rival Staples, seeks growth in business-focused sales, according to a company statement.

In his statement Tuesday, Office Depot CEO Gerry Smith called technology "the office supply of the future." The pivot comes after a springtime C-suite shakeup at Office Depot, following Smith's arrival in February.

"Acquiring CompuCom is the first step in this new strategic direction," Smith said. "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."

Both Staples and Office Depot are looking to their business supply operations to sustain growth in the aftermath of their failed merger last year. Each has unloaded overseas operations to focus on North America, and each is having to watch out for Amazon's growing effort in the space. Staples, after its acquisition by a private equity firm Sycamore Partners, plans to spin off retail operations entirely.

Office Depot earlier this year announced the launch of the “Taking Care of Business” brand platform, aimed at business and retail consumers alike. New television and radio spots feature a return of the company’s use of the Bachman Turner Overdrive song "Taking Care of Business," which the company used in the 1990 s. The brand reboot follows rival Staples' launch of a new campaign in May aimed at broadening the retailer's customer base.

CompuCom, founded in 1987, provides managed technology services, IT support services and technology consulting services for businesses large and small, according to a press release. CompuCom’s established business offering, "Tech-Zone," will be placed within Office Depot’s stores nationwide, and the company said that revenue from the added services as well as increased foot traffic will improve its per-store profitability.

Office Depot expects to add some $1.1 billion of revenue and extract cost savings of over $40 million within two years.