Written by Deborah Mary Sophia, Sabyata Mishra, and Abigail Somerville
(Reuters) – Home Depot has made the biggest acquisition of building materials supplier SRS Distribution by a top U.S. home improvement chain as it seeks to expand its professional customer base to better meet lukewarm demand. The company plans to acquire the company for $18.25 billion.
The company and rival Loews Cos. expect the recovery to slow this year as U.S. consumers pause large home remodeling and renovation projects due to persistently high inflation.
This has put pressure on Home Depot's do-it-yourself (DIY) division, which accounts for about half of its business, and the company has increased its focus on “pro customers” such as professional builders and contractors to boost sales. are doing.
Thursday's deal will allow Home Depot to leverage SRS' warehouse network and delivery vehicles to better serve existing customers.
SRS is a portfolio company of private equity firms Leonard Green & Partners and Berkshire Partners, primarily serving professional clients such as roofing contractors, landscapers, and pool contractors. The company, which had revenue of $10 billion in 2023, will operate as an independent division within Home Depot.
Leonard Green had bought a majority stake in SRS in 2018 in a $3.55 billion deal, people familiar with the matter told Reuters on Thursday.
According to the person, in December Leonard Green allowed some fund investors to withdraw cash from SRS, which was valued at about $16 billion, including debt, and the company was in the process of being sold. Home Depot also agreed to the deal, it added.
“This is a great deal at the perfect time,” said Thomas Hayes, chairman of Great Hill Capital.
“You only have to look at the housing shortage and young millennials to see that the more moderate interest rates are, the more construction will boom,” he said.
Home Depot shares, which have a market value of $382.42 billion, fell 1%, according to LSEG data. Home Depot will assume SRS's debt and use cash on hand and debt to finance the acquisition.
“Improving customer experience”
Home Depot Chief Financial Officer Richard McPhail said on a call with analysts that the partnership is all about sales and profitability as well as “improving the customer experience.”
The company has often faced criticism from customers, particularly large contractors, for excessive ordering, delivery and logistics issues that can impede the timely completion of projects.
“The problem[with ordering on Home Depot's website]is that when it comes to shipping, it's very sporadic…The problem has always been logistics,” said the CEO of roofing solutions company Gunner. (CEO) Eddie Puchard said.
With the transaction, which is expected to close by the end of fiscal year 2024, Home Depot will add SRS' network of more than 2,500 professional sales associates in more than 760 locations to more than 2,000 store and distribution center locations in the United States. I will add it.
Home Depot will also be able to leverage SRS's fleet of more than 4,000 trucks and field delivery capabilities.
“SRS is very good at delivering these things. (They) provide great customer service and deliver on time…So Home Depot launched the service and gave contractors a whole new focus. ,” Puchard said.
(Reporting by Deborah Sophia and Sabyata Mishra in Bengaluru and Abigail Somerville in New York; Editing by Shriraj Kaluvila)
