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Home Depot acquires specialty distributor SRS for $18.25 billion, a huge bet on professional sales growth

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Home deposit said Thursday it acquires 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 professionals of the House.

The home improvement retailer expects the acquisition to be completed this fiscal year, which ends at the end of January. He declared that he would finance the operation through his liquid assets and through his loan.

Home Depot already gets half its business from professionals, while the other half comes from DIY customers. With this deal, the Atlanta-based company is making a new effort to attract customers tackling complex and lucrative construction jobs, especially as homeowners move away from do-it-yourself projects. This was one of the priorities set by Home Depot executives for this year. This is also the reason why the company was open a growing network of distribution centers which can store large quantities of items professionals need, like lumber or shingles, and deliver them directly to a job site.

This is the largest acquisition in Home Depot’s history.

In an interview with CNBC, CEO Ted Decker described the deal as “a complementary accelerator” to its efforts to attract more professionals. He said the deal increases Home Depot’s total addressable market by $50 billion.

SRS Distribution sells supplies to professionals in the landscaping, swimming pool and roofing trades. 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 across 47 states. It also has a fleet of 4,000 delivery trucks and a sales force dedicated to home professionals, Decker said.

The acquisition adds to other recent deals the retailer has made in the professional space. They understand the acquisition of HD Supply for approximately $8 billionnational distributor of maintenance, repair and operations products in the multifamily and hotel markets, in 2020. Last year, it also made two other acquisitions for undisclosed amounts: International Design Group, which owns Construction Resources, a distributor of surfaces, appliances and other products sold 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 as they increase scrutiny of mergers and acquisitions.

“With a distinct customer base, different channels, different buying occasions, we are confident that this will happen,” he said.

The acquisition is expected to be dilutive to Home Depot’s earnings per share due to amortization, but to be accretive to cash earnings per share in the first year after the transaction closes.

Home Depot has turned to the professional sector as its growth stagnates. The retailer, one of the biggest beneficiaries of pandemic trends, has faced moderating sales as consumers take on fewer home projects and spend more on grocery bills and experiences. In recent quarters, customers have purchased fewer big-ticket items and taken on smaller, less expensive projects.

Decker said on an earnings conference call last month that Home Depot would focus on opening new stores, attracting more professional sales and trying to make customers’ shopping experience smoother.

Home Depot plans to open a dozen new stores this fiscal year. He recently announced that he open four distribution centers which help support sales to professionals.

The acquisition comes after a home improvement retailer said last month that it expects sales slowdown to continue. It said it expected total sales for the full year to increase by about 1%, including an additional week in the financial year. It nevertheless expects that comparable sales, excluding the effect of store openings and closures and not including the additional week, will fall by around 1%.

Home Depot had a total of 2,335 stores in the United States, Mexico and Canada at the end of the fiscal year at the end of January. It has approximately 465,000 employees.

As of Wednesday’s close, Home Depot shares were up about 11% this year. That’s slightly higher than the 10% gains in the S&P 500. Home Depot’s stock closed at $385.89 on Wednesday, bringing its market value to about $382 billion.

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