Skip to Content
Market Update

Will Staples Close Its Doors to the Public?

Rumors of private equity interest in in the office supplies retailer seem legitimate, but the size of a potential deal could be an obstacle.

Mentioned: , , , ,

On Thursday, Fortune magazine published a report that several private equity sponsors may be interested in taking  Staples (SPLS) private, citing unnamed sources. We consider this transaction to be a low-probability outcome, since Staples' lofty size (roughly $8.2 billion market capitalization and $9 billion enterprise value at current market prices) would make it difficult to acquire the necessary financing, and financial backers may be reluctant to put that much capital at risk in a company that will probably experience significant structural headwinds as a result of increased competition from  Amazon.com (AMZN) and other nontraditional office distributors. 

Still, we would not be surprised to hear that large private equity firms are carrying out preliminary work on this name. Staples continues to generate a great deal of free cash flow (roughly $1.2 billion in 2011), and acquirers could be enticed by the potential to expand the delivery business, which has historically benefited from a large network of fairly sticky middle-market customers, while redirecting capital away from low-return investments such as the struggling international operations. Assuming $8 billion-$9 billion in debt is issued (approximately 4 times fiscal 2011 EBITDA), low-single-digit top-line growth and operating margins stabilize around 6% over the next decade (more aggressive assumptions than we've committed to in our base-case assumptions), an internal rate of return in the high teens for private equity suitors, and an enterprise/EBITDA exit multiple of 6 times, we arrive at a theoretical leveraged buyout takeover price around $17 per share.

Liang Feng does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.