Home Depot is acquiring specialty retailer SRS for $18.25 billion, banking on increasing Pro sales

Home Depot said on Thursday The company 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 do-it-yourselfers.

The hardware retailer expects the takeover to be completed this fiscal year, which ends at the end of January. It said the deal would be financed with 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 makes another push to attract customers tackling complex and lucrative projects. That was one of the priorities that Home Depot executives set for this Year. That’s why the company has also opened a growing network of distribution centers where large quantities of items professionals need, such as lumber or shingles, can be stored and delivered directly to the jobsite.

The acquisition is the largest in Home Depot’s history and complements other recent deals in the professional space. This includes the approximately $8 billion acquisition in 2020 of HD Supply, a national distributor of maintenance, repair and operational products in the multifamily and hospitality markets. Last year too the International Designs Group takes overwhich owns Construction Resources, a distributor of finishes, appliances and other products that sells to do-it-yourselfers for an undisclosed amount.

In an interview with CNBC, CEO Ted Decker described the deal as a “complementary accelerator” to its efforts to attract more professionals. He said the deal increases Home Depot’s total addressable market by $50 billion.

SRS Distribution sells supplies to landscaping, pool and roofing professionals. The McKinney, Texas-based company has approximately 11,000 employees and 760 offices in 47 states. In addition, the company has a fleet of 4,000 delivery trucks and a dedicated sales team targeting do-it-yourselfers, Decker said.

Decker said he was confident the deal would be approved by federal regulators, even as they tightened scrutiny of mergers and acquisitions.

“Given the separate customer base, the different channels and the different buying occasions, we are confident that this will happen,” he said.

The acquisition is expected to be dilutive to Home Depot’s earnings per share due to the write-down, but to be accretive to cash earnings per share in the first year after the transaction closes.

Home Depot has turned to the professional business as its growth stagnates. The retailer, a big beneficiary of pandemic trends, has had to contend with lukewarm sales as consumers tackle fewer home projects and spend more on grocery bills and experiences. In recent quarters, customers have purchased fewer expensive items and instead taken on smaller, lower-cost projects.

Decker said in an earnings call last month that Home Depot would focus on opening new stores to attract more professional salespeople and try to make customers’ shopping experiences smoother.

To fuel growth, the company is opening new stores and trying to win more business from do-it-yourselfers, such as contractors overseeing remodels and other large-scale projects. Home Depot plans to open a dozen new stores during the fiscal year. The company recently announced plans to open four professional distribution centers.

The takeover will take place after The home improvement retailer said last month that it expects slower sales trends to continue. The company expects total sales for the full year, including an additional week in the fiscal year, to increase approximately 1%. Still, comparable sales, which strip out the impact of store openings and closings and exclude the extra week, are expected to decline by about 1%.

At the end of the fiscal year at the end of January, Home Depot had a total of 2,335 stores in the United States, Mexico and Canada. It employs around 465,000 people.

As of Wednesday’s close, Home Depot shares were up about 11% this year. That’s slightly more than the 10 percent gain for the S&P 500. Home Depot’s stock closed at $385.89 on Wednesday, bringing its market value to about $382 billion.

This is breaking news. Please check back for updates.

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