Depot acquires Allied: industry comment

 

This week Office Depot became the rightful owner of Allied Office Products for an undisclosed sum. And the industry seems to have praised Depot’s move as a good one all round. After all, Wall Street is becoming increasingly discontent with organic growth alone and the buy is a sensible way for the retailer to add automatic value to its top line.

 

Brian Levine, spokesperson for Depot, explained to OPI+: "The acquisition of Allied Office Products provides a path for growth that would otherwise take time to achieve on an organic basis. Allied’s management experience, national customer base and knowledgeable salesforce are perfect complements to Office Depot’s existing contract organisation and infrastructure."

 

The acquisition is consistent with Depot’s plans to boost profit and increase market share in its business solutions division – and also consistent with its long-time wish to increase its presence in the Northeast of the US, where Allied is strong.

 

Allied, which has annual revenues of more than $300 million, offers a portfolio including office supplies, break room and coffee services, janitorial supplies, computer products, custom printing, managed print services and office furniture. Its chairman and CEO Howard Brown, his son Michael, who currently serves as president of Allied, and other key executives will continue as part of the management team within Depot’s division.

 

And Howard Brown is clearly looking forward to a global footprint and the strength of over 1,000 retail stores. He said in a statement: "Office Depot has the breadth and depth of both national and private brands, as well as the promotional programmes, purchasing power and financial clout necessary to empower our salespeople to better meet customer requirements on a global basis."

 

Being so logical for Depot – and clearly lucrative for Allied – the move has invoked little surprise among the dealer community. Al Lynden, co-partner of Chuckals Office Products, said: "I’m not at all surprised. Staples got Prime… Depot responds with Allied. Same story, different day. Most entrepreneurs dream of the big score at the end of the day. In our industry that big score more often than not is the big fish eating up the smaller one."

 

Ed Walper of Impact Office Products added that he wasn’t surprised either by the acquisition.

 

So will we likely see more acquisitions? "Yes," said Walper. "Wherever strategic benefit can be gained by a power channel player (such as Depot’s need to strengthen its position in the north-east), look for acquisitions to occur."

 

David Guernsey of Guernsey Office Products agreed that the appetite is growing among the power players to penetrate the mid-market, which could be satisfied through dealer acquisitions. "There has been an upsurge in contact with large dealers by folks purporting to represent acquisition interests of several power channel entities," he said.

 

But dealers were quick to point out that current developments did not resemble the acquisition frenzy of times past. Ian Wist of Arizona-based Wist Office Products told OPI+ that he thought this time big box players would be more selective, just like the dealers themselves. "It appears that the big box suppliers are in acquisition mode again, but I get the feeling it will be different this time," he said.

 

"Do I think it is a trend emerging? Not really," added Lynden. "I doubt if we will ever see the stampede we saw in the USOP era, however, I am sure we will hear of more [moves] throughout the year."

 

Depot for one has not ruled out further acquisitions: "We do not have any further comment on future acquisitions," Levine told OPI+. "However, we are committed to profitably growing our business."

 

As is customary in these circumstances, many dealers are looking forward to chasing Allied’s former customers, which are used to the model and personal service of an independent dealer as opposed to a power channel player. They may also be anticipating – and hoping for – integration issues between the two businesses. "Depot will have to step up and take care of this account base," said Wist. "This is a great opportunity for the independent dealers in Allied’s markets to earn business."

 

One sector that will not be welcoming the news is the wholesaler channel. As Dan Binder, analyst with Buckingham Research, explained: "The move is good for Office Depot, but it may not be good for United Stationers. Nationals source less from wholesalers than independents so the transfer of sales means less business for the wholesale channel." David Guernsey added: "There has to be some impact… I doubt seriously that Office Depot is going to adopt Allied sourcing strategies."

 

Depot expects the transition to take approximately three to six months.