Staples Is Being Bought for $6.9 Billion

Sycamore Partners said on Wednesday it would acquire U.S. office supplies chain Staples for $ 6.9 billion, a rare bet by a private equity firm this year in the U.S. retail sector, which has been roiled by the popularity of internet shopping.

Buyout firms largely have refrained from attempting leveraged buyouts of U.S. retailers in the past two years, amid a wave of bankruptcies in the sector that have included Sports Authority, Rue21, Gymboree and BCBG Max Azria.

Sycamore’s deal for Staples (spls), however, which Reuters was first to report would come this week, illustrates that some buyout firms are distinguishing between mall-based fashion retailers, which are vulnerable to changing consumer tastes, from retailers with a niche and rich cash flow, such as Staples.

The acquisition also shows that Sycamore, whose buyout fund is dedicated to retail deals, is willing to take on the risk of falling store sales at Staples because of the potential it sees in Staples’ delivery unit, which supplies businesses directly.

Sycamore said it would pay $ 10.25 per share in cash for Staples. The shares ended trading at $ 9.93 on Wednesday after Reuters reported the exact deal price. Staples said the deal was expected to close by December. Shira Goodman will remain as Staples CEO.

Sycamore will be organizing Staples along three lines: its stronger delivery business, its weaker retail business and its business in Canada, two sources familiar with the deal said. This structure will give Sycamore the option to shed Staples’ retail business in the future, one of the sources said.

Framingham, Massachusetts-based Staples, which made its name selling paper, pens and other supplies, has 1,255 stores in the United States and 304 in Canada. It previously tried to merge with rival retailer Office Depot Inc but the deal was thwarted by a U.S. federal judge on antitrust grounds last year.

Staples has the largest share of office supply stores in the United States at 48%, according to Euromonitor, and generated $ 889 million of adjusted free cash flow in 2016.

Sycamore has a reputation amongst private equity peers for taking bets on retail investments others might eschew. Its previous investments include regional department store operator Belk, discount general merchandise retailer Dollar Express and mall and web-based specialty retailer Hot Topic.

Barclays and Morgan Stanley & Co. are acting as financial advisors and Wilmer Hale is acting as legal advisor to Staples. BofA Merrill Lynch and Deutsche Bank Securities are acting as financial advisors and Kirkland & Ellis is acting as legal advisor to Sycamore Partners.

UBS Investment Bank, BofA Merrill Lynch, Deutsche Bank, Credit Suisse, Royal Bank of Canada, Jefferies, Wells Fargo Bank, National Association and Fifth Third Bank are providing debt financing for the deal.