Private equity, Mergers and Acquisitions, Mergers and Acquisitions, MSP

CompuCom Finally Sold; MSP’s Valuation Fell 70% Since 2017

Private equity firm Variant Equity has acquired CompuCom, an MSP, from Office Depot parent ODP Corp. The deal is valued at up to $305 million -- or roughly $700 million less than ODP paid to buy CompuCom roughly four years ago.

This is technology M&A deal number 831 that ChannelE2E covered in 2021. See all technology M&A deals for 2021 and 2020 listed here.

Variant Equity Acquires CompuCom: About the Private Equity Firm

Variant Equity, founded in 2017, is a Los Angeles-based private equity firm. The firm makes "control investments in corporate divestiture and similarly operationally intensive transactions across a range of industries including transportation and logistics, technology, and business services."

This is Variant Equity's first acquisition in the MSP sector. The private equity firm's other holdings include:

  • Certegy Payment Solutions, a provider of payment risk management and services to retailers and financial institutions in North America.
  • Coach USA, a provider of passenger transportation and mobility services including intercity bus, public transit, employee transportation, campus shuttle and airport transportation services.
  • Curb Mobility, a mobility platform that serves taxi and other for-hire ride operators, regulators, service providers, and riders.

Office Depot-CompuCom: Failed Retail-MSP Marriage

The CompuCom sale to Variant Equity ends an Office Depot-CompuCom marriage that never hit its stride.

Indeed, Office Depot acquired CompuCom for $1 billion — a lofty 10 times earnings at the time— in October 2017. But the IT services business unit failed to scale under ODP’s ownership, and ODP had been trying to sell off CompuCom  since late 2020.

CompuCom President Mick Slattery
CompuCom President Mick Slattery

CompuCom President Mick Slattery described key business progress to ChannelE2E in June 2020. However, the business struggled on some fronts during the pandemic. Also, a malware attack against CompuCom triggered further revenue and profit challenges for the MSP.

Fast forward to December 31, 2021. ODP quietly announced the CompuCom sale to Variant Equity at 4:30 p.m. ET on New Years Eve, essentially ending Office Depot's failed foray into the fast-growing managed IT services provider (MSP) market.

Little is publicly known about the current state of CompuCom’s business. Last we heard,  the MSP’s revenues grew 4 percent in Q2 of 2021 v. Q2 of 2020 — not all that great, considering the MSP market is growing roughly 8 to 10 percent per year (based on various market segments), and the MSSP market is enjoying double-digit percentage growth rates.

Office Depot Parent ODP Sells MSP Business CompuCom: Executive Perspectives

In a prepared statement about the deal, ODP CFO Anthony Scaglione said:

“This action represents an important step in continuing to align our business model and resources towards our core strategy. By enhancing our core focus and leveraging our B2B assets and digital commerce platform, we are in an excellent position to maximize returns for our shareholders.

We’re excited about completing this important step for our future and the increase in our share buyback authorization. We look forward to providing additional details on our year-end results conference call."

Added Farhaad Wadia, managing partner of Variant Equity:

“CompuCom has a long history of providing excellent technology support and services for its large blue-chip customer base. We are thrilled by this opportunity to partner with the CompuCom team and build on the company’s rich history of innovation.”

Concluded CompuCom President Mick Slattery:

"Our vision is to connect people, technology and the edge with a seamless experience. This acquisition accelerates and amplifies our ability to deliver on that vision for our customers. We are excited to combine Variant’s financial acumen and operations and technology resources with CompuCom’s capability to deliver single-source end-to-end technology solutions. Our shared vision for reimagining the future of work makes me truly excited about what is ahead for CompuCom and our customers. We are in an even stronger position to deliver the best user experience for our customers and to continue to earn the right to serve them every day."

Big Box Retailers Enter And Exit MSP Market

The failed Office Depot-CompuCom marriage wasn't unique. Multiple big box retailers, craving recurring revenues in the small business technology market, have acquired MSPs. But each of the deals ultimately failed to generate repeatable, scalable synergies between the big box retailers and MSPs.

In addition to Office Depot, rivals such as Best Buy and Staples have also acquired MSPs -- only to exit a few years later amid mixed to underwhelming performance in the MSP sector.

Joe Panettieri

Joe Panettieri is co-founder & editorial director of MSSP Alert and ChannelE2E, the two leading news & analysis sites for managed service providers in the cybersecurity market.