The Home Depot Thursday said The company is acquiring SRS Distribution for $18.25 billion, the latest and biggest sign of its ambition to drive sales by winning more business from contractors, roofers and other home professionals.
The home improvement retailer expects the acquisition to close this fiscal year, which ends at the end of January. The company said it will fund the deal through a combination of cash on hand and debt.
Home Depot already gets half its business from professionals and the other half from DIY customers. With the deal, the Atlanta-based company will once again try to win over customers who do complex and lucrative construction jobs, especially as homeowners pull back on DIY projects. It’s one of the priorities Home Depot leaders have set this year. That’s why the company has been opening a growing network of distribution centers that can stock the bulk items professionals need, such as lumber or shingles, and ship them directly to the job site.
The acquisition is the largest in Home Depot’s history.
In an interview with CNBC, CEO Ted Decker said the deal was a “supplemental accelerator” for it to attract more professionals. He said the deal adds $50 billion to Home Depot’s total addressable market.
This adds to other recent deals the retailer has struck in the specialty space. These include the approximately $8 billion acquisition in 2020 of HD Supply, a national distributor of maintenance, repair and operations products in the multifamily and hospitality markets. It also made two other acquisitions last year for undisclosed amounts: International Design Groupwhich owns Construction Resources, a distributor of surfaces, appliances and other products to home professionals; and TEMCO, an appliance delivery and installation company.
SRS Distribution sells supplies to professionals in the landscaping, pool and roofing industries. The McKinney, Texas-based company has about 11,000 employees and 760 locations in 47 states. The company also has a fleet of 4,000 delivery trucks and a sales team dedicated to serving home professionals, Decker said.
Decker said he was confident the deal would win approval from federal regulators despite their heightened scrutiny of mergers.
“Because of the different customer base, different channels, different buying occasions, we are very happy that this is going smoothly,” he said.
The acquisition is expected to be dilutive to Home Depot’s earnings per share due to amortization, but will be accretive to cash earnings per share in the first year after the transaction closes.
As growth stalls, Home Depot has pivoted to specialty businesses. The retailer has been a major beneficiary of pandemic trends, which have seen sales slow as consumers take on fewer home projects and spend more on grocery bills and experiences. Over the past few quarters, customers have purchased fewer big-ticket items and begun tackling smaller, lower-priced items.
Decker said on an earnings call last month that Home Depot would focus on opening new stores, attracting more professional sales and working to make the shopping experience more seamless for customers.
Home Depot plans to open a dozen new stores this fiscal year. The company recently announced it will open four Professional distribution centers.
This acquisition was made in Home improvement retailers said last month they expected the slowdown in sales to continue. The company said it expects total sales to rise about 1% for the full year, including an extra week of sales this fiscal year. However, it expects comparable sales, net of the impact of store openings and closures and excluding the impact of the additional week, to decline approximately 1%.
Home Depot had 2,335 stores in the United States, Mexico and Canada at the end of its fiscal year in late January. It has approximately 465,000 employees.
As of Wednesday’s close, Home Depot shares were up about 11% this year. That’s slightly better than the S&P 500’s 10% gain. Home Depot’s shares closed at $385.89 on Wednesday, giving it a market value of about $382 billion.
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