Home Depot Zeros In On Pro Builder Market With $18.3 Billion Deal
Dow Jones home improvement retailer Home Depot (HD) on Thursday announced plans to acquire SRS Distribution for $18.25 billion, the largest purchase in company history. HD stock ticked lower early Thursday on the news.
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McKinney, Texas-based SRS Distribution is a residential specialty trade distribution company that serves professional roofers, landscapers and pool contractors. The company has a professional sales force of more than 2,500 employees and a branch network of more than 760 locations across 47 states. SRS operates a 4,000-plus truck fleet and provides jobsite delivery capabilities. Home Depot says the combination will allow it to extend its offerings to residential specialty trade pros and better-serve renovators and remodelers.
Under terms of the deal, a subsidiary of Home Depot will acquire SRS for a total enterprise value of $18.25 billion, funded through a mix of cash and debt. The company expects the transaction to close by the end of fiscal 2024, pending customary closing conditions and approvals.
SRS Expands Addressable Market
Home Depot plans to raise incremental debt to support the acquisition by utilizing debt capital markets, CFO Richard McPhail said in the release. But the company intends to maintain its current credit ratings. At the end of its October quarter, Home Depot reported just over $2 billion in cash and equivalents.
Home Depot says the transaction will dilute earnings-per-share from a GAAP perspective due to amortization expenses, but accretive from a cash EPS perspective in the first year after closing.
Meanwhile, Home Depot claims the acquisition balloons its total addressable market by $50 billion to approximately $1 trillion.
“SRS has built a robust and successful platform that will accelerate our growth with the residential professional customer while presenting future opportunities with the specialty trade pro,” CEO Ted Decker said in the release.
The acquisition is part of an effort to take market share among professional builders, which is currently dominated by TopBuild (BLD) and Builders FirstSource (BLDR). Home Depot generates about half of its business from professionals with the remaining half from do-it-yourself customers, according to CNBC. However, DIY demand and home renovation projects declined recently amid rising interest rates.
BLD stock rallied 125% over the past 12 months and BLDR rocketed 146%, outpacing HD stock’s 37% gain during that period. Meanwhile, Home Depot expects the trend of slowing sales and DIY demand to continue, according to Q4 earnings in February.
Home Depot Stock
HD stock eased 0.3% Thursday, after climbing 1.6% Wednesday. Shares are up more than 40% from their late October lows. Home Depot jumped 11.4% in 2024 through Wednesday’s close.
Rival Lowe’s (LOW) traded flat Thursday morning. Shares leapt 13.8% year-to-date. Lowe’s is extended above a cup-with-handle buy zone.
BLD stock ticked lower Thursday but trades near its March 21 record highs.
Builders FirstSource inched down Thursday morning, also near its March 21 all-time high.
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