The Home Depot has acquired SRS Distribution as it focuses on the pro market. (Photo by Tim ... [+]
The Home Depot has completed the acquisition of SRS Distribution Inc. for a total of approximately $18.25 billion as the company targets a $250 billion market.
The acquisition will increase the company's “total addressable market” to approximately $1 trillion, an increase of approximately $50 billion, Home Depot said of the deal.
The combination of the two businesses is expected to accelerate The Home Depot's growth with the residential professional customer and the acquisition of SRS “complements The Home Depot's capabilities and enables the company to better serve the complex purchase occasion, while also establishing The Home Depot as a leading specialty trade distributor across multiple verticals,”, the DIY giant said in a statement.
It’s a strategy that Ted Decker, CEO at The Home Depot, had already laid out after he said earlier this year that the company saw potential growth opportunities with residential professional contractors who shop many categories for complex projects — a total addressable market sector Decker estimated to be about $250 billion.
But catering to that group requires additional fulfillment options and order management capabilities — which Decker dubbed the “pro ecosystem” — which is where SRS, a leading residential specialty trade distribution company, has come in.
SRS Offers Pro Platform
Founded in 2008 and headquartered in McKinney, Texas SRS operates across several verticals serving the professional roofer, landscaper and pool contractor. It has grown to become one of the fastest growing building products distributors in the U.S. and currently operates under a group of local brands across more than 760 locations in 47 states.
Under the terms of the merger agreement, a subsidiary of The Home Depot has acquired SRS for a total enterprise value (including net debt) of approximately $18.25 billion, funded through cash on hand and debt.
"We plan to access the debt capital markets to raise incremental indebtedness in support of this acquisition. We expect the acquisition to create significant shareholder value over the long term," said Richard McPhail, executive vice president and CFO, when the purchase was announced in March.
"SRS is an excellent fit for The Home Depot – it's both complementary and additive to our growth," added Decker. "Their ability to quickly build leadership positions in each of their specialty trade verticals is a testament to the team's strong vision, leadership, culture and execution."
DIY Sales Soften
The Home Depot is the world's largest home improvement specialty retailer and at the end of the first quarter of fiscal year 2024, the company operated a total of 2,337 retail stores cross all 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, 10 Canadian provinces and Mexico.
The Home Depot and Lowe's have seen DIY sales soften.
However, times have been tough for the DIY giants. Last month, the company reported sales of $36.4 billion for the first quarter of fiscal 2024, a decrease of 2.3% from the first quarter of fiscal 2023. Comparable sales for the first quarter of fiscal 2024 decreased 2.8%, and comparable sales in the U.S. decreased 3.2%.
Net earnings for the first quarter of fiscal 2024 were $3.6 billion, or $3.63 per diluted share, compared with net earnings of $3.9 billion, or $3.82 per diluted share, in the same period of fiscal 2023.
Over the past year Home Depot’s stock price has shown some solid progression, up 17.4% over the past 12 months and just up by circa 2.5% since the start of the year.
DIY spending has been down following a pull-forward of renovations during the Covid-19 pandemic. Meantime, high interest rates have depressed home sales, which also impacts renovations and refurbishment spend.
Rival Lowe’s, which has also reported softening sales, has also been setting out plans to improve its offerings for professional contracts.