Every owner Staples has ever had

The earlier posts in this track describe the conventional company in pieces: the shareholders, the board, the stock, the exits. This post follows a single company through every one of those stages. Staples is a good candidate because it went through every stage in order and the numbers are public.

1986: two founders

Tom Stemberg had been fired from a supermarket chain in 1985 and was looking for something to start. The story he told for the rest of his life was that he needed a printer ribbon on a July 4th weekend and couldn't find a store open that sold one. He opened the first Staples in Brighton, Massachusetts, in May 1986, with a co-founder, Leo Kahn, who had run a rival supermarket chain.

At this point the company belonged to the people who started it. That lasted about as long as it took to need money for a second store.

The venture money

Stemberg pitched a young firm called Bain Capital, run by Mitt Romney, which had been founded two years earlier. Bain put in about $2.5 million over the early rounds, with other venture funds alongside. In exchange the funds got shares and seats on the board, which meant a say in how fast the company grew.

A venture fund has one job, which is to return money to its own investors within about ten years. So from 1986 on, Staples was being built toward an event that would let those funds sell, and nobody on the board was under any illusion about that. Stemberg's ownership shrank with each round, which is normal; he was trading a share of the company for the capital to build it.

1989: the public gets in

Staples went public in April 1989, three years after the first store, at $19 a share. The stock closed its first day at $22.50 and the company was worth a bit over $200 million, and Bain's $2.5 million eventually turned into about $13 million, as the Boston Globe later reported.

From here the venture funds sold down over the following years and were replaced by the general public, pension funds and later index funds. From this point on, the owners were people who had never met Tom Stemberg, and in our view the share price became the only owner the company could hear.

Twenty-eight years public

For a long time being a public company went very well for Staples. Staples grew to about 2,200 stores worldwide by 2014 and became the largest office supply retailer in the country. Employees at a growing public company get raises and promotions, and the ones at the top get stock.

Then the business turned, as online sellers took the paper-and-toner trade that had been the whole point of the stores. In March 2014 the company announced it would close up to 225 stores to cut $500 million a year in costs. It closed 168 stores that year, 181 the next and 51 the year after, by its own annual reports. Each closure is a set of jobs, and to the market each one reads as a cost coming out.

In 2015 Staples agreed to buy Office Depot for $6.3 billion, a deal pushed by an activist fund, Starboard Value, that held stakes in both companies. Combining the two would have meant one fewer competitor and, inside the companies, one set of headquarters staff instead of two. The Federal Trade Commission sued to block it and a federal court agreed in May 2016. The stock, which had been around $27 before the financial crisis, was trading near $8.

A stock near $8 with a blocked merger behind it is when a board starts taking calls from buyers, and Staples' board took one.

2017: private equity

In June 2017 Sycamore Partners, a private equity firm that specializes in struggling retailers, agreed to buy Staples for $10.25 a share, about $6.9 billion. That was a 20 percent premium over the recent stock price, so shareholders voted yes, and employees didn't get a vote. The deal closed that September and Staples stopped being a public company after 28 years.

Sycamore put up roughly $1.6 billion of its own money. The rest was borrowed, and the debt went onto Staples' books rather than Sycamore's. That structure is what the "leveraged" in leveraged buyout refers to: the company ends up owing the money that was used to buy it.

The first thing Sycamore did was split Staples into three separate companies: the business that sells to corporate customers, the US stores and the Canadian stores. The corporate business was the profitable part. Separating it meant it could eventually be sold or taken public on its own.

The playbook, applied

In April 2019, about a year and a half after the buyout, Sycamore refinanced the corporate business with $5.4 billion in new debt and paid itself a $1 billion dividend out of the proceeds, as Bloomberg reported at the time. That returned about two thirds of the equity it had put in. Staples' debt went from $4.25 billion to $5.3 billion, and the interest on the extra billion comes out of its earnings every year.

Nothing about the stores or the products changed in exchange for that $1 billion. It came from a lender who was promised Staples' future earnings, and the interest on it comes out of those earnings before anything else does.

The stores kept closing; the company had about 2,200 at its peak and TheStreet was still reporting new closures in 2026. Store employees are the ones who absorb the closures; the corporate business, the part Sycamore has put its money behind, is a different set of people in a different building.

Unlike Toys R Us, which its private equity owners ran into bankruptcy in 2018, Staples is still operating, and the corporate business it split off is the piece Sycamore has been trying to sell or take public since 2019, according to Bloomberg. Whoever buys it will have paid with borrowed money too, and will want that money back on a similar schedule.

What each owner wanted

Stemberg wanted a company; everyone after him wanted a return on a schedule, and the schedules got shorter. The index funds that held it at the end wanted nothing in particular, because they hold everything. Sycamore wants its money back with a return and has already collected most of it.

At no point in forty years were the people working at Staples the ones deciding who owned the company, which we don't think is unusual; the same was true at Dell and Petco below.

Sometimes a company comes back to the public market

Not every buyout ends in decline. Dell was started in a dorm room in 1984 and went public in 1988. Michael Dell and Silver Lake took it private in 2013 for about $25 billion, and it came back to the public market in 2018 as a much larger company. Petco has been public, then private, then public, then private, then public again, with new debt loaded on at each turn.

If you're interviewing at a company owned by a private equity firm, the question that matters is when the firm bought in. They usually want out within five to seven years, and year six at a portfolio company is when the owner is cutting costs to make the sale numbers look good, where year one is when it is still spending.