London Firm Begins U.S. Push With PIPE Deal

Target: Office Depot Inc.

Price: $350 million

Sponsor: BC Partners

Seller: Office Depot Inc.

Financial Adviser: Sponsor: Goldman Sachs; Seller: Peter J. Solomon Company LP, Morgan Stanley

Legal Adviser: Sponsor: Latham & Watkins LLP; Seller: Wachtell Lipton Rosen & Katz

Bankers looking to shop U.S. companies poised for global expansion in the next few years should get to know BC Partners.

The London-based buyout shop recently made its first investment in what will be strategic push into the United States, making a $350 million preferred stock investment in Office Depot Inc., the chain of office supply stores, on June 23.

The transaction marks the first U.S. deal for the 23-year-old firm since it set up shop in New York in March 2008. Jamie Rubin, a senior partner who runs the day-to-day operations of the New York-based team, said that eventually executives at BC Partners hope to be making half of their investments in U.S.-based companies, though he couldn’t say when that would happen. The firm is not allocating a certain percentage of its current fund—the €6 billion ($8.45 billion) BC European Capital Fund VIII LP, closed in 2005—toward U.S. deals, and it’s not planning a dedicated U.S. fund, Rubin said.

The Office Depot deal is also unusual for the firm because it is a minority investment; BC Partners typically seeks control stakes in its target companies. But Rubin said firm executives were attracted to the scale of Office Depot’s global operations, which include 1,605 stores in 48 countries that generate combined annual sales of around $14.5 billion. The shop’s research into the company’s business also made them confident the investment could meet BC Partners’s return goal for a gross IRR of at least 25 percent to 30 percent. The firm doesn’t plan to eventually seek control of the company, Rubin said.

Based in Delray Beach, Fla., publicly traded Office Deport has been struggling, however, as recession has been crippling to almost all retailers. The company posted a net loss of $55 million in the first quarter of 2009, compared to earnings of $69 million in the same period a year earlier. Rubin, however, said he and his partners think right now is the best time to invest. “We’re not calling a bottom, but it’s our view that things are probably as bad as they’re going to get,” he said.

Rubin also noted that, as preferred equity investors, the firm has some downside protection. BC Partners purchased approximately $275 million of Series A preferred stock and $75 million of Series B preferred stock, with a 10 percent coupon. Office Depot’s board has already signed off on the transaction, so the deal is now only pending shareholder approval.

BC Partners’s U.S. group currently employs nine investment professionals and Rubin expects to round the staff out with about three more junior-level professionals by next fall. Raymond Svider, a managing partner and co-chair of the firm formerly based in Paris and London, is helping Rubin lead the U.S. team. Rubin, Svider and Justin Bateman, partner, have also joined the Office Depot board of directors.

Founded in 1986, BC Partners currently manages about $15.5 billion. Shares of Office Depot were trading just below $5 at press time.