Courtesy of Benzinga.
Staples, Inc. (NASDAQ: SPLS)’s agreement to sell itself to Sycamore Partners for $10.25 per share or $6.9 billion “makes total sense,” at least according to UBS analyst Michael Lasser.
While the case could be made that Staples sold itself at a poor valuation, this may not be the case, Lasser argued in a report. Specifically, the acquisition assumes a multiple of 12x on consensus fiscal 2018 earnings per share and 5.6x consensus 2018 EBITDA — a “pretty modest” price tag when considering the retailer “faces a host of risks” with no clear exit strategy.
“There’s a lot of work to be done to turn-around this business, and the competitive landscape probably won’t get much easier,” Lasser wrote. “Thus, the multiple reflects these factors.”
Nevertheless, Staples’ deal signals that there will likely always be a price at which a strategic buyer finds compelling enough in face of an uncertain future. In Sycamore’s case, the private equity firm likely need to assume a “meaningful” amount of debt to fund the transaction, which could restrain its financial flexibility moving forward.
On the other hand, Staples’ free cash flow of $680 million is “significant” and can support a more levered capital structure.
Investors expecting Staples’ deal to spur further M&A activity in the retail space may need to reconsider as the valuation of many other companies “have to come down quite a bit” to meet the multiple at which Staples is being acquired.
Related Links:
Many Retailers Are ‘Incredibly Bad’ At Offering Compelling Shopping Experiences, New Survey Finds
Leveraged Buyout Of Staples Merits Consideration, But Not A ‘Slam Dunk’
Latest Ratings for SPLS
Date | Firm | Action | From | To |
---|---|---|---|---|
Apr 2017 | Citigroup | Upgrades | Neutral | Buy |
Dec 2016 | Loop Capital | Initiates Coverage On | Hold | |
Aug 2016 | Deutsche Bank | Maintains | Hold |
View More Analyst Ratings for SPLS
View the Latest Analyst Ratings
Posted-In: Michael Lasser Retail Acquisitions retailers Sycamore PartnersAnalyst Color Analyst Ratings Best of Benzinga