Home Depot’s ambitious plans to expand its pro sales were put on display as they announced a colossal $18.25 billion acquisition of SRS Distribution. The move underlines an accelerated drive to create a greater connection with contractors, builders and other professionals within the home industry.
The home improvement giant anticipates that the deal will be confirmed within this fiscal year, which concludes near January’s end. Financial backing for this substantial acquisition will come from readily available cash and borrowed funds.
The pro-business market currently represents half of Home Depot’s consumer base, balancing against the do-it-yourself clientele. Through the SRS distribution deal, Home Depot is optimistically reaching out to customers involved in demanding and potentially lucrative construction projects. This strategic move is necessary as a response to the observed decline in consumers’ DIY initiatives.
The expansion has been earmarked as top-priority by Home Depot executives this year. It is in line with the company’s development of an extensive network of distribution centers engineered to store extensive volumes of predominantly pro-demanded items such as lumber and shingles. These supplies are destined for direct job site delivery, bypassing the need for customer collection.
The retail sector’s latest buzz circles around this acquisition, being the most significant in the history of Home Depot. CEO Ted Decker branded the deal as a “complementary accelerator” to their campaign focusing on the attention of more pros. The acquisition is expected to inflate Home Depot’s total addressable market by an additional $50 billion.
Their recent acquisitions in the pro-focused sector don’t stop there. They concluded an $8 billion acquisition of HD Supply last year, a leading national distributor of maintenance, repair, and operational products. Other 2020 acquisitions included International Designs Group and Temco, both companies directly addressing the needs of professionals in the home industry.
SRS Distribution provides supplies to professionals engaged in landscaping, pool and roofing projects. The Texas-based company has a dedicated workforce of around 11,000 employees, spread across 760 branches in 47 states. They also operate 4,000 delivery trucks and a dedicated salesforce that targets the home pros.
CEO Decker is optimistic about the acquisition’s endorsement by federal regulators, despite heightened regulatory scrutiny of mergers and acquisitions. Home Depot expects the deal to dilute earnings per share due to amortization but promises cash earnings per share accretiveness in the first year following closure.
Home Depot has broadcasted its intention to open 12 new stores throughout the fiscal year, with a focus on attracting more pro sales. They also aim at enhancing their customers’ shopping experiences. As a part of this expansion plan, the company will commence operating four distribution centers dedicated to catering to the pro clientele.
Home Depot’s growth trajectory has recently plateaued, and the retailer is exploring ways to regain its growth momentum. Its ambitious plans of expansion come at a time when the home improvement retailer is dealing with a decline in sales. Their expectation for the full fiscal year’s total sales projects a modest growth of 1%, including an additional week. At the end of the latest fiscal year, Home Depot’s inventory spanned across 2,335 stores throughout North America, supported by approximately 465,000 employees.
The retailer has thus far seen an approximate 11% increase in shares in 2021, slightly outperforming the S&P 500’s 10% gain. Wednesday saw Home Depot’s stock close at $385.89, driving its market value to roughly $382 billion.
