Mar 25, 2019
Sycamore Partners is prepping a $1 billion dividend recap for Staples
Sycamore Partners is prepping a $1 billion dividend recap for Staples, which would let it recoup around two-thirds of the equity used to buy the office supplies company 16 months ago.
Why it matters: Because this sort of myopic greed gives ammunition to private equity's critics.
- For the uninitiated: Dividend recaps are a mechanism whereby private equity-owned companies issue new debt, and then hand proceeds over to the private equity firm (as opposed to using it to grow the business). Sometimes they don't matter too much. Sometimes they form leveraged anchors around a company's neck.
The bottom line: "The recapitalization and any [subsequent] IPO would be focused on the division of Staples that sells anything from pens to office chairs to large corporate clients, which Sycamore carved out of the chain’s retail operations at the time of the LBO. The transaction will increase Staples’ debt load to $5.325 billion from around $4.25 billion... equivalent to around 4.7 times adjusted EBITDA." — Davide Scigliuzzo & Eliza Ronalds-Hannon, Bloomberg.