Exclusive: Cerberus, Sycamore Partners wrestle with Staples buyout

Tue May 2, 2017 12:04pm EDT
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By Lauren Hirsch and Greg Roumeliotis

(Reuters) - Cerberus Capital Management LP and Sycamore Partners are the two private equity firms actively exploring an acquisition of Staples Inc (SPLS.O: Quote), the U.S. office supplies retailer, people familiar with the matter said on Tuesday.

Staples has held talks with several private equity firms over the last few weeks about a potential deal, the sources said. Cerberus and Sycamore have emerged as the frontrunners, as other prospective buyers have become discouraged by the challenges Staples faces in shifting its business model from serving consumers to catering to companies, the sources added.

Clayton Dubilier & Rice LLC , Advent International Corp and Bain Capital LLC are among the private equity firms that have also held discussions with Staples but are now less actively pursuing a deal, according to the sources.

A major hurdle for private equity firms in putting together an acquisition plan is foreseeing how they can successfully cash out on their investment a few years down the line, the sources said.

While Staples has sufficient cash flow to support a leveraged buyout, many firms struggle to see how they can take the company public or divest it at a significantly higher valuation than what they will pay for it, the sources added.

Private equity firms are also troubled by the divergent fortunes of its successful wholesale business and its laggard retail business, according to the sources. Staples still carries the cost burden of 1,255 stores in the United States and 304 stores in Canada. It recently announced plans to sell roughly 60 stores in North America.

Staples is continuing to explore a sale, and there is no certainty it will clinch a deal with either Cerberus or Sycamore Partners, the sources said, who asked not to be identified because the deliberations are confidential.

Staples, Cerberus, Sycamore Partners, Clayton Dubilier, Advent and Bain all declined to comment.   Continued...

FILE PHOTO: A shopping cart is seen outside a Staples office supplies store in the Chicago suburb of Glenview, Illinois, February 4, 2015. REUTERS/Jim Young/File Photo