Home Depot announced on Thursday its plans to acquire SRS Distribution, a specialty materials provider for professional contractors, in a deal valued at approximately $18.25 billion. The acquisition, which is the largest in Home Depot's history, marks a significant bet on the growing professional builder and contractor business as the retailer grapples with slowing sales in the do-it-yourself (DIY) segment.
SRS Distribution, based in McKinney, Texas, supplies materials to professionals in the landscaping, pool, and roofing industries. With a workforce of about 11,000 employees, 760 branches across 47 states, and a fleet of 4,000 delivery trucks, SRS Distribution is well-positioned to cater to the complex needs of home professionals. The company also boasts a dedicated salesforce of more than 2,500, which Home Depot CEO Ted Decker believes will complement the retailer's efforts to attract more pro customers.
"SRS has built a robust and successful platform that will accelerate our growth with the residential professional customer while presenting future opportunities with the specialty trade pro," Decker said in a statement. He added that the acquisition increases Home Depot's total addressable market by $50 billion.
The deal comes as Home Depot faces moderating sales growth, with consumers taking on fewer home projects and spending more on essentials like groceries and experiences. Over the past few quarters, customers have been buying fewer big-ticket items and focusing on smaller, less expensive projects. In response, Home Depot has been investing heavily in its pro business, opening new distribution centers that cater to professionals and making strategic acquisitions to enhance its offerings.
Prior to the SRS Distribution deal, Home Depot had made several other acquisitions in the pro space, including the approximately $8 billion purchase of HD Supply, a national distributor of maintenance, repair, and operations products, in 2020. Last year, the retailer also acquired International Designs Group, which owns Construction Resources, a distributor of surfaces, appliances, and other products that sells to home pros, and Temco, an appliance delivery and installation company.
Decker expressed confidence that the SRS Distribution acquisition will receive approval from federal regulators, despite increased scrutiny of mergers and acquisitions. "With the separate customer base, different channels, different purchase occasions, we feel good that this will go through," he said in an interview with CNBC.
The acquisition is expected to be dilutive to Home Depot's earnings per share due to amortization but accretive in terms of cash earnings per share in the first year after the deal closes. The retailer plans to finance the deal through a combination of cash on hand and debt.
Home Depot's shift towards pro sales comes as the U.S. housing market continues to face a severe shortage of new homes, driving prices to record highs. The median sales price for new homes in the U.S. has climbed 29.4% over the past five years, reaching $417,700 in the fourth quarter, according to data from the Federal Reserve Bank of St. Louis. While a modest pullback in mortgage rates has encouraged some homebuyers, affordability remains a significant challenge for millions of Americans.
As of Wednesday's close, shares of Home Depot are up about 11% this year, slightly outperforming the S&P 500's 10% gains. The retailer's stock closed at $385.89 on Wednesday, giving it a market value of approximately $382 billion.
The SRS Distribution acquisition is expected to close by the end of Home Depot's fiscal year 2024, which ends in late January. Following the completion of the deal, SRS Distribution CEO Dan Tinker and his senior management team will continue to lead the company.
