In a strategic move to enhance its market share in the professional sector, Home Depot has confirmed its intent to purchase SRS Distribution in a whooping $18.25 billion deal. This transaction is set to be the largest in the domestic improvement retailer’s history, signaling their ambitious drive to amplify sales through fostering stronger relationships with contractors and other home professionals.
The company anticipates the conclusion of this acquisition during the current fiscal year, which wraps up at the end of January. According to sources, Home Depot plans to fund the deal from its cash reserves and through borrowing.
At present, professional customers account for about half of Home Depot’s sales, with the other half consisting of do-it-yourself consumers. With this acquisition, the Atlanta-based corporation aims to broaden its reach to more customers taking on complex, higher-profit construction jobs. This expansion coincides with homeowners’ reduced engagement in DIY projects — a trend Home Depot’s leaders are keenly observing.
Another aspect of their plan for expansion includes rolling out an increasing number of distribution centers. These facilities are designed to hold vast amounts of professional-essential items like lumber and shingles, facilitating direct delivery to job sites.
Home Depot CEO, Ted Decker, considers the SRS acquisition to be an advantageous addition to their Professional customer initiative. According to him, this deal could magnify Home Depot’s total addressable market by $50 billion.
SRS Distribution, which currently operates under the ownership of Leonard Green & Partners and Berkshire Partners, specializes in the sale of supplies to professionals in landscaping, pool and roofing businesses. With its headquarters in McKinney, Texas, the company has an extensive infrastructure comprising around 11,000 employees, 760 branches across 47 states, a 4,000-vehicle delivery fleet, and a salesforce dedicated to serving home professionals.
Home Depot’s move to acquire SRS Distribution comes on the heels of other recent transactions aimed at enlarging its stake in the professional space. Key among these was the $8 billion acquisition of HD Supply in 2020, a prominent distributor of maintenance, repair, and operations products in the multifamily and hospitality markets. The retailer also acquired International Designs Group, which owns Construction Resources, and Temco, an appliance delivery and installation company, in 2020.
Despite the expected increase in regulatory oversight of mergers and acquisitions, CEO Ted Decker remains optimistic about the approval of the SRS deal. Based on the distinct customer base, differing channels, and diverse purchasing occasions between the two companies, Decker believes the transaction is likely to go through.
Although the acquisition might negatively impact Home Depot’s earnings per share due to amortization, it is projected to boost cash earnings per share during the first year post-acquisition. As sales growth slows down, the company is tapping into the professional business sector. In recent quarters, a dip in consumer expenditure on large-ticket items and sizeable home projects has been noted and is expected to continue.
Aiming to adapt to this new market climate, Home Depot intends to open 12 new stores during the present fiscal year. It also recently announced plans to launch four distribution outlets targeting professional sales. Home Depot operated 2,335 stores across the U.S., Mexico, and Canada at the end of the last fiscal year and had about 465,000 employees.
Shares of Home Depot have seen a moderate increase this year, edging upwards by about 11%, slightly overtaking the S&P 500’s 10% gains. At Wednesday’s closure, Home Depot’s stock settled at $385.89, raising its market value to roughly $382 billion.
