Home goods store he said Thursday is acquiring SRS Distribution in an $18.25 billion deal, the latest and biggest sign of its ambitions to grow 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. It said it would finance the deal through cash and debt.
Home Depot already gets half of its business from professionals, while the other half comes from do-it-yourself customers. With the deal, the Atlanta-based company is making another push to win over customers involved in complex and profitable construction jobs, particularly as homeowners move away from DIY projects. That was one of the priorities Home Depot leaders set for this year. It’s also why the company is opening a growing network of distribution centers that can stock large quantities of items professionals need, such as lumber or shingles, and deliver them directly to a job site.
The acquisition is the largest in Home Depot’s history.
In an interview with CNBC, CEO Ted Decker described the deal as an “additional accelerator” in his efforts to attract more professionals. He said the deal increases Home Depot’s total addressable market by $50 billion.
SRS Distribution sells supplies to professionals in the landscaping, pool and roofing businesses. The McKinney, Texas-based company has approximately 11,000 employees and 760 locations in 47 states. It also has a fleet of 4,000 delivery trucks and a dedicated sales department that serves home professionals, Decker said.
The acquisition adds to other recent deals the retailer has made in the business space. They include the roughly $8 billion acquisition of HD Supply, a national distributor of maintenance, repair and operations products in the multifamily and hospitality markets, in 2020. Last year, it also made two other acquisitions for undisclosed amounts: International Designs Group, which owns Construction Resources, a distributor of surfaces, appliances and other products it sells to home professionals. and Temco, an appliance delivery and installation company.
Decker said he is confident the deal will be approved by federal regulators, even as they increase scrutiny of mergers and acquisitions.
“With the separate customer base, the different channels, the different shopping opportunities, we feel good that this will come through,” he said.
The acquisition is expected to be down on Home Depot’s earnings per share due to depreciation, but accretive to earnings per share in the first year after the deal closes.
Home Depot has been leaning into the professional business as its growth stagnates. The retailer, a major beneficiary of pandemic trends, has dealt with subdued sales as consumers take on fewer household projects and spend more on grocery bills and experiences. In recent quarters, customers bought fewer big-ticket items and tackled smaller, less expensive projects.
Decker said last month on an earnings call that Home Depot will focus on opening new stores, bringing on more sales professionals and trying to make the customer shopping experience more seamless.
Home Depot plans to open a dozen new stores during the fiscal year. It recently announced that it will open four distribution centers to help support sales to professionals.
The acquisition comes after the The home improvement retailer said last month it expected slower sales trends to continue. It said it expects total sales for the full year to rise about 1%, including an extra week in the fiscal year. But it expects comparable sales, which strip out the effect of store openings and closings and exclude the extra week, to fall about 1 percent.
Home Depot had a total of 2,335 stores in the U.S., 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 are up about 11% this year. That’s slightly ahead of the S&P 500’s 10% gain. Home Depot’s stock closed at $385.89 on Wednesday, bringing its market value to about $382 billion.