Home Depot will buy building materials supplier SRS Distribution in an $18.25 billion deal, in the top U.S. home improvement chain's largest deal as it looks to broaden its professional customer base to better tackle tepid demand.
The company and rival Lowe's Cos. have projected a slower recovery this year as U.S. consumers pause big home remodeling and renovation projects due to sticky inflation.
This has put pressure on the Do-It-Yourself (DIY) segment, which makes up about half of Home Depot's business, and the company has sharpened its focus on "Pro-customers" such as professional builders, contractors, handymen to drive sales.
Thursday's deal will expand Home Depot's total potential market by about $50 billion to roughly $1 trillion, the company said. In 2020, Home Depot had bought back industrial materials wholesaler HD Supply Holdings in an $8 billion deal.
SRS, a portfolio company of private equity firms Leonard Green & Partners and Berkshire Partners, serves Pro-customers including roofers, landscapers and pool contractors. It will operate as an independent unit within Home Depot under its current leadership team.
Leonard Green had bought a majority stake in SRS in a $3.55 billion deal in 2018, a person familiar with the matter told Reuters on Thursday.
Last December, Leonard Green allowed some of its fund investors to cash out of SRS at a valuation of about $16 billion, including debt, the source said, adding Home Depot agreed to the deal following a sale process for the company.
"This is a great deal at a great time," said Thomas Hayes, chairman at Great Hill Capital.
"You need (to) only look to the housing shortage - and young demographics of our millennials - to understand that as rates moderate construction will boom," he said.
Shares of Home Depot, which has a market value of $382.42 billion according to LSEG data, were flat in early trading.
The acquisition will add SRS' network of more than 2,500 professional sales force in 760 plus locations to Home Depot's footprint of more than 2,000 U.S. stores and distribution centers.
The deal, which would involve taking on the debt of SRS, will be funded with cash on hand and debt and is expected to close by the end of fiscal 2024.
SRS, which raked in $10 billion in revenue in 2023, has been on an acquisition spree. It closed 17 deals in the past three years focused on roofing, metal and building materials suppliers, according to its website.
