Roughly 13 months after Office Depot confirmed plans to acquired CompuCom for $1 billion, the office supply giant is making quantifiable progress in the managed IT services market. But CompuCom's business performance still has more room for improvement, ChannelE2E believes.
Office Depot paid a lofty 10 times EBITDA to acquire CompuCom. The deal arrived at a time when most MSP- and IT services buyouts were valued at about six to eight times annual EBITDA, ChannelE2E believes.
The M&A deal quickly showed signs of progress by around February 2018. Although Office Depot's core retail revenues were still slipping at the time, the company pointed to sticky recurring revenues and associated IT services from the CompuCom business unit.
Office Depot Revenue Growth
Fast forward to present day and there are more signs of progress. The company's total reported sales for the third quarter 2018 were $2.9 billion -- compared to $2.6 billion in the third quarter of 2017, an increase of 10.2 percent.
Product sales in the third quarter were up 1.1 percent, while service revenues grew 123.7 percent, Office Depot says. Admittedly, much of the growth involved the CompuCom acquisition. The interesting twist? Service revenue excluding the CompuCom division and associated revenue recognition still grew 17 percent in the third quarter.
Office Depot's revenue mix also is improving. Services revenue now represents 15 percent of total company sales, up from 7 percent in the prior year, Office Depot says.
"Overall, we are making great progress on our transformation and remain confident that we have the right strategy in place to drive sustainable, profitable growth in the future," CEO Gerry Smith said earlier this month as part of the earning's announcement.
Office Depot: Challenges, Opportunities
Still, Office Depot's business transformation hasn't been flawless. Among the challenge areas: CompuCom's revenues actually dropped in Q3 2018. The company blamed lower sales to a major enterprise customer that is "experiencing a significant reorganization of their business."
Excluding that single customer situation, CompuCom's Q3 sales would have been essentially flat year-over-year, Office Depot indicated.
In a quest to boost CompuCom's performance, the company:
- Reorganized the unit's entire customer-facing organization;
- introduced a dedicated customer success leader to ensure better alignment with clients' needs;
- streamlining the structure within operations groups, removing layers and flattening the organization to "significantly improve services velocity and accountability";
- automated routine tasks; and
- hired a new sales leader to drive growth.
Those steps, the company claims, seek to improve customer satisfaction, improve order fulfillment and service delivery and reduce cost in the organization, Office Depot asserts.