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Staples Seals A Deal, But Risk Weighs On Offer Price

Courtesy of Benzinga.

Staples Seals A Deal, But Risk Weighs On Offer Price

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


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