Office Depot Set To Reshape Enterprise Landscape With $1 Billion Purchase Of IT Services Giant CompuCom

Office Depot will acquire systems integration giant CompuCom for approximately $1 billion, the company announced Tuesday, in a move the office supply retailer called the beginning of its wide-scale shift into the business and technology services.

Charlotte, N.C.-based CompuCom, a solution provider that works with six of the top 10 Fortune 500 firms, gives Office Depot instant scale in the IT industry and an opportunity to tap into a $25 billion enterprise-level tech services and products market, according to Office Depot CEO Gerry Smith.

’Technology is the office supply of the future,’ Smith said in a statement. ’Today marks a significant milestone as we move to provide a unique business services platform for our current and future customers."

[Related: CompuCom, Pomeroy In Merger Talks To Create $3.1B Channel Powerhouse]

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CompuCom had seen its revenue sharply decline since 2014 when it ranked as highly as No. 23 on the CRN Solution Provider 500. The company had four different CEOs during that stretch one of which was is in the IT Hall of Fame. Moody's Investor Services, meanwhile, has downgraded CompuCom's credit rating twice in the past two years. However, the company's workforce is undeniable: CompuCom maintains a team of 6,000 technicians nationwide, according to the release, and employs about 11,500 people.

Office Depot said CompuCom's technical muscle and cloud and data center expertise would have the newly-formed powerhouse well-positioned for success in the SMB market; the roughly 1,400 Office Depot stores are located within three miles six million small and midsized businesses.

"That's a big deal," said Martin Wolf, president of martinwolf M&A Advisors of Walnut Creek, Calif., one of the top channel investment advisory deal makers It's a consolidation of service and businesses. "CompuCom's business has changed over time. But they have a big robust services business, and that's interesting. Any transaction has risks. They're clearly identified. And if they execute well, they'll be fine."

Office Depot is not the first mammoth retailer to take the plunge and acquire an IT services provider. Staples bought managed service provider Thrive Networks in 2007 and electronics giant Best Buy purchased mindSHIFT in 2011. Both of those big retailers sold their respective MSPs in 2014. But more recently, Best Buy has added more in-home advisors, tech support and services personnel to help consumers solve their tech problems at home. Similarly, furniture retailer IKEA bought freelance service provider Task Rabbit so it could provide a variety of services outside of its stores.

The added revenue stream from CompuCom will help Office Depot, which merged with competitor Office Max in 2013 but was blocked by regulators from merging with competitor Staples in 2016. Office Depot said on Tuesday it is expecting to report an overall sales decline of between 7 and 8 percent for its third-quarter 2017 financial results in November.

Thomas H. Lee Partners, the private equity firm that owned CompuCom before Wednesday's sale, will hold an 8 percent equity position in Office Depot.