Business Case Studies & Business Publications

Staples LBO: Meet You on the Mezzanine

Loutskina, Elena, ...

Case

Staples LBO: Meet You on the Mezzanine

Loutskina, Elena; Meredith, Jon; Stevenson, Donald

F-1721 | Published August 23, 2017 | 18 pages Case

Collection: Darden School of Business

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In this case, two friends, a managing director with an investment banking group and a partner at Cavalier Capital LLC have submitted a bit for a leveraged buyout (LBO) of retail giant Staples Inc. Staples seemed like an ideal LBO candidate: it was a large, stable company; it was a market leader with highly predictable cash flows; and, most important, its shareholders were unhappy. Markets also looked friendly for a new wave of LBOs: valuations were down, and banks were once again flush with cash and ready to lend. The two friends know they need to sweeten their 6.12× EBITDA bid, invest more in due diligence, and talk to management and the board of directors. They also know from experience that competition would inevitably draw bids in a relatively narrow range. They are considering expanding the debt profile through the judicious use of mezzanine financing. Prior to the global economic downturn, mezzanine had all but disappeared from view. Now that banks had grown more conservative in the amount of debt they were willing to provide, mezzanine financing was once again a crucial ingredient in ensuring a winning bid. There were many different combinations of debt packages that could be used to finance the LBO. Both friends had to make sure that the financing structure and the final bid were best suited not only for equity and mezzanine investors, but also for Staples.