Home Depot has completed its acquisition of SRS Distribution for a total consideration of approximately $18.25 billion, targeting a $250 billion market.
Home Depot said the acquisition will expand its “addressable market size” to about $1 trillion, an increase of about $50 billion.
The combination of the two companies is expected to accelerate Home Depot's growth among home specialty customers, with the acquisition of SRS “complementing Home Depot's capabilities and enabling it to better serve complex buying opportunities, while positioning Home Depot as a leading specialty trade distributor across multiple verticals,” the DIY giant said in a statement.
It's a strategy Home Depot CEO Ted Decker already laid out earlier this year, when he said he saw potential growth opportunities from specialty home contractors looking for multiple categories for complex projects, a target market sector he estimated at about $250 billion.
But catering to that group requires additional fulfillment options and order management capabilities — what Decker calls a “pro ecosystem.”That's where SRS, a leading residential specialty trade distribution company, comes in.
SRS provides a professional platform
Founded in 2008 and headquartered in McKinney, Texas SRS operates across multiple verticals serving professional roofers, landscapers and pool builders. The company has grown to be one of the fastest growing building products distributors in the United States and now operates in more than 760 locations across 47 states under a series of local brands.
Under the terms of the merger agreement, a subsidiary of Home Depot acquired SRS for an aggregate enterprise value, including net debt, of approximately $18.25 billion, funded by cash on hand and debt.
“We intend to access the debt capital markets to raise additional debt to support this acquisition. We expect this acquisition to create significant long-term shareholder value,” Executive Vice President and Chief Financial Officer Richard McPhail said when the deal was announced in March.
“SRS is a great fit for Home Depot, complementing and further accelerating our growth,” Decker added. “The company's ability to quickly establish leadership positions in each of its areas of expertise is a testament to the team's strong vision, leadership, culture and execution.”
DIY sales are sluggish
The Home Depot is the world's largest specialty home improvement retailer, operating a total of 2,337 retail stores in all 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, 10 Canadian provinces and Mexico as of the end of the first quarter of fiscal 2024.
But tough times remain for the DIY giant: Last month, the company reported first-quarter fiscal 2024 sales of $36.4 billion, down 2.3% from first-quarter fiscal 2023. Same-store sales for the first quarter of fiscal 2024 were down 2.8%, with U.S. same-store sales down 3.2%.
First quarter fiscal 2024 net income was $3.6 billion, or $3.63 per diluted share, up from $3.9 billion and $3.82 per diluted share in the same period of fiscal 2023.
Home Depot shares have shown solid growth over the past year, rising 17.4% over the past 12 months and about 2.5% since the beginning of the year.
DIY spending has fallen as renovation work has been brought forward during the coronavirus pandemic, while high interest rates have dampened home sales, which has also impacted spending on renovations and improvements.
Rival Lowe's has also reported sluggish sales and has unveiled plans to improve its offering for professional contracts.