Home Depot It said Thursday it has acquired SRS Distribution in an $18.25 billion deal, the latest and biggest sign of its ambitions to boost sales by winning more business from contractors, roofers and other home professionals.
The home improvement retailer expects to close the acquisition this fiscal year, which ends in late January. It said it would finance the deal through available cash and debt.
Home Depot already gets half of its business from professionals, while the other half comes from do-it-yourselfers. With this deal, the Atlanta-based company is making another push to win customers who handle complex and lucrative construction jobs, especially as homeowners pull back from DIY projects. That was one of the priorities set by Home Depot leaders this year. It's also why the company has opened a growing network of distribution centers that can stock large quantities of items needed by professionals, such as lumber or shingles, and deliver them directly to the job site.
The acquisition is the largest in Home Depot's history.
In an interview with CNBC, CEO Ted Decker described the deal as a “complemental accelerator” to its efforts to attract more professionals. The deal increases Home Depot's total addressable market by $50 billion, he said.
SRS Distribution sells supplies to landscape, pool and roofing professionals. It is owned by two private equity firms, Leonard Green & Partners and Berkshire Partners.
The McKinney, Texas-based company has approximately 11,000 employees and 760 branches in 47 states. It also has a fleet of 4,000 delivery trucks and a dedicated sales team that caters to home professionals, Decker said.
The acquisition adds to other recent deals the retailer has struck in the professional space. They include the roughly $8 billion acquisition of HD Supply, a national distributor of maintenance, repair and operations products in the multifamily and hospitality markets, in 2020. Last year, it also made two other acquisitions for undisclosed amounts: International Design Group, which owns Construction Resources, a distributor of roofing, appliances and other products that sells to home professionals; and Temco, an appliance delivery and installation company.
Decker said he was confident the deal would be approved by federal regulators, even with increased scrutiny of mergers and acquisitions.
“With the separate customer base, different channels, different buying occasions, we feel comfortable with this continuing,” he said.
The acquisition is expected to dilute Home Depot's earnings per share due to depreciation, but is accretive in terms of cash earnings per share in the first year after the deal closes.
Home Depot turned professional as its growth stagnated. The retailer, a major beneficiary of pandemic trends, has dealt with moderate sales as consumers take on fewer home projects and spend more on grocery bills and experiences. Over the past few quarters, customers have purchased fewer big-ticket items and taken on smaller, less expensive projects
Home Depot will focus on opening new stores, attracting more professional sales and trying to make the shopping experience for customers more seamless, Decker said last month on an earnings call.
Home Depot plans to open dozens of new stores during the fiscal year. It recently announced that it will open four distribution centers that will help support sales to professionals
The acquisition comes after the home improvement retailer said last month that it expects slower sales trends to continue. It said it expects total sales for the full year to grow about 1%, including an additional week in the fiscal year. However, it expects comparable sales, which exclude the impact of store openings and closings and do not include the extra week, to decline by about 1%.
Home Depot had a total of 2,335 stores across the United States, Mexico and Canada as of its fiscal year end in late January. It has about 465,000 employees
As of Wednesday's close, Home Depot shares were up about 11% this year. That's slightly ahead of the S&P 500's 10% gain. Home Depot stock closed at $385.89 on Wednesday, raising its market value to about $382 billion.
