With a firm pledge in securing a larger share of the professional business market, Home Depot has announced it is set to acquire specialty distributor SRS Distribution in a remarkable $18.25 billion deal. This latest venture stands as the most extensive in the history of the home improvement retailer and serves as a resounding testament to their commitment to win over more vendors such as roofers, contractors, and other home improvement pros. Calculations reveal that the agreement stands to increase Home Depot’s total accessible market by a staggering $50 billion.
The Atlanta-based retailer expects the dealings to finalize within this fiscal year, projecting a financing strategy that primarily favors cash on hand and debt allocation. Home Depot enjoys a comprehensive range of customers, with pros accounting for half its business and the remainder coming from do-it-yourself clienteles. Prospective home improvement projects look set to increase as homeowners scale back on do-it-yourself projects, an evolving trend that this deal aims to capitalize on.
Meanwhile, SRS Distribution has made a name for itself by supplying professionals within the realms of landscaping, pool services, and roofing businesses. The Texas-based company is backed by private equity firms Leonard Green & Partners and Berkshire Partners and boats of a strong operational presence across 47 states with 760 branches investing in nearly 11,000 employees. The robust landscape is beefed up by a fleet of 4,000 delivery trucks and a dedicated salesforce that appeals to home pros.
This acquisition complements a series of recent deals that Home Depot has embarked on in the professional space. This pool includes the notable $8 billion acquisition of HD Supply last year, a renowned supplier of maintenance, repair, and operations products in the multifamily and hospitality markets. Other acquisitions in 2020 featured International Designs Group, owners of the Construction Resources, a distributor of surfaces, appliances, and other products catering to home pros. The other is Temco, a company specializing in appliance delivery and installation services.
The CEO of Home Depot, Decker, expressed optimism about the approval of the deal by federal regulators, despite the noticed upsurge in scrutiny of mergers and acquisitions. The company expects this acquisition, initially dilutive in terms of earnings per share due to amortization, to be accretive in cash earnings per share in the year following the deal closure.
Notwithstanding its stellar performance during the pandemic period, Home Depot, has, in recent quarters, faced the challenge of moderating sales, as consumers sway towards less pricey projects and dedicate more on groceries and experiences. But with plans to open more stores, heighten pro sales and offer a more seamless shopping experience, the company believes that this acquisition symbolizes a positive and daring step towards the road of resurgence.
In the wake of the acquisition announcement, Home Depot expects a mild slump in the market trends to persist, predicting an estimated 1% growth in total sales for the full year, which is inclusive of an additional week in the fiscal year. Meanwhile, projection for comparable sales, which account for the outcomes of store openings and closures and does not include the additional week, is expected to drop by about a percent.
Home Depot, at the end of the fiscal year, operates a total of 2,335 stores across the U.S., Mexico and Canada, closely supported by a considerable workforce of about 465,000 employees, and with plans to launch a dozen new stores during the fiscal year, the scales couldn’t tilt any better in its favor.
As optimism and anticipation surround the future prospects of Home Depot post-acquisition, its stocks currently stand at an 11% increase this year as of Wednesday’s closing. The closing stock price was $385.89 with its market value approximated at $382 billion.
