Jan 24, 2017
While the sale of Staples and OfficeMax in Australia and New Zealand remains unresolved, there are some interesting observations to be made in respect of the confirmed sell-off of both companies’ European businesses.
In 2016, OfficeMax’s parent company Office Depot Inc. announced the completion of the sale of its European business to The Aurelius Group. This transaction is part of the company’s previously announced international divestiture strategy to focus on opportunities in its North American business.
In December last year, Staples announced the sale of a controlling interest in its European operations to Cerberus Capital Management.
Staples will retain a 15 per cent interest in the business and will be represented on its board of directors.
Staples said that one of its top strategic priorities has been to narrow its geographic focus on North America, and the sale was a step towards “simplifying its operations and better positioning Staples for sustainable long-term growth”.
The agreement with Cerberus follows Staples’ sale of its UK retail business to Hilco Capital Limited.
The simultaneous retreat from the international marketplace underlines the challenge for large contract office supplies businesses and retailers to turn a profit in the digital age, where margins are extremely thin for middlemen who are caught in a pricing trap of their own making.
The office products industry in Europe now has three investment companies in its midst and, as we all know, private investment companies have one thing on their collective mind when they take over an ailing or under-performing business – and that is to make a relatively quick profit.
So who are Aurelius, Cerberus and Hilco and how do they intend to make a quid out of traditional office and education supplies businesses?
Munich-based Aurelius has revenues of around EUR4.5 billion and the Office Depot deal is its largest to date in terms of revenues.
The company said its plan is to continue implementing the measures that have already been initiated to revitalise Office Depot Europe directly and partly through local partners and the management on the ground.
The aim is to expand on growth initiatives involving new product and service offerings and the pan-European distribution and logistics network and to push the e-commerce side of the business.
Established in 1992, Cerberus has more than US$30 billion under management invested in four primary strategies: operational private equity, both control and non-control; distressed securities and assets; commercial mid-market lending; and real estate-related investments. From its headquarters in New York, the company has a network of affiliate and advisory offices in the US, Europe and Asia.
According to Cerberus’ senior managing director Steven Mayer, the company aims to enhance Staples’ competitive position across its European markets and channels, and return the business to growth by “capitalising on its many assets, including its well-recognised brands, strong customer relationships, dedicated sales force, advanced distribution and IT infrastructure, comprehensive pan-European footprint, and talented management and associates”.
Staples European business will be separated into a privately-held company controlled by an affiliate of Cerberus. The new company will enter into a licensing agreement with Staples for the use of certain Staples intellectual property, including its brand, a global accounts agreement, and transition services agreement governing a variety of services for defined periods. The company will operate under the Staples banner name and other sub-brands in European markets, and its associates will continue to be employees of Staples Europe, which will maintain its headquarters in Amsterdam.
London-based Hilco Capital (part of US-based Hilco Global which also operates in Australia) currently owns, among other retailers, HMV and was responsible for the successful turnaround of the business over the course of the last four years.
Hilco Capital’s Paul McGowan said the comp[any was looking forward to working with the Staples UK team and while retail in the UK has been challenged recently, a Hilco team led by a retail veteran will work alongside the existing management team to build a plan for success for the business.
The use of the Staples brand will be phased out by the UK retail business over the coming months.
What will happen to the Staples and ‘Max brands in Australia remains to be seen.
By Barrie Parsons, editor at www.stationerynews.com.au