The Home Depot is again bolstering its offering for pro customers.
The home improvement company has struck a deal for its subsidiary SRS Distribution to acquire specialty building products distributor GMS Inc, subject to customary closing conditions. A subsidiary of SRS will purchase all outstanding shares of GMS’ common stock for $110 per share for a total equity value of about $4.3 billion.
“Acquiring GMS represents a next logical step in [Home Depot’s] deep dig into the Pro distribution channel,” Wells Fargo analysts led by Zachary Fadem said in emailed comments Monday.
The deal, which is expected to close by the end of this fiscal year, will be funded through cash on hand and debt. Including debt, the transaction is valued at about $5.5 billion, the companies announced Monday.
"The combination of GMS and SRS will provide the residential and commercial Pro customer with more fulfillment and service options than ever before,” Dan Tinker, CEO of SRS, said in a statement. “Together, we'll create a network of more than 1,200 locations and a fleet of more than 8,000 trucks capable of making tens of thousands of jobsite deliveries per day.”
This move is expected to accelerate SRS’s goals of becoming a multi-category building distributor. GMS’ business focuses on specialty building materials, including drywall, ceilings, steel frames and other products for residential and commercial construction and remodeling projects. It will also expand SRS’ distribution footprint in the U.S. and Canada, the company said in its announcement.
This also strengthens Home Depot’s position among pro customers. The home improvement retailer last year acquired SRS — which serves roofing, landscaping and pool contractors — for about $18.25 billion. At the time, Home Depot said the acquisition expanded its total addressable market by $50 billion to about $1 trillion.
"The Home Depot acquired SRS as a platform for growth, and SRS continues to demonstrate exceptional execution and strong performance," Home Depot CEO Ted Decker said in a statement. "In our first year of working together, we've captured significant synergies, including cross-selling new products and service offerings to both Home Depot and SRS customers, advancing Home Depot's enterprise trade credit program through the SRS platform, and many other initiatives designed to drive the customer value proposition and operational efficiency. This success gives us confidence that the addition of GMS to the SRS platform will allow us to create even greater value for our customers."
Home Depot and rival Lowe’s have been working to win over the pro customer segment in recent years. Earlier this year, Home Depot appointed long-time company veteran Michael Rowe as its executive vice president of pro, tasked with growing the retailer’s pro business.
To better serve those customers, Home Depot also opened four distribution centers stocked with big and bulky products, including lumber, insulation and roofing shingles.
Its agreement for SRS to acquire GMS, however, comes at a time when home improvement retailers feel the pressures of a slowing housing market. During the first quarter of this year, home sales declined 3.1% year over year, according to research from GlobalData.
For Home Depot, the retailer reported Q1 net sales grew 9.4% year over year to $39.9 billion, while comparable sales fell 0.3%. Billy Bastek, executive vice president of merchandising, said on a call in May that pro comp sales were positive during the quarter and outpaced DIY customer sales.
