Home Depot pays $9.1bn for building materials wholesaler HD Supply

Home Depot has struck a deal to acquire its former subsidiary HD Supply for $9.1bn, increasing the US retailer’s presence in wholesale distribution 13 years after it disposed of the business.

The world’s biggest home improvement chain said on Monday it had agreed to buy the Nasdaq-listed company, which supplies building materials to maintenance and repair contractors, for $56 per share in cash — a 25 per cent premium to HD Supply’s closing share price on Friday.

The purchase by Home Depot, whose sales have risen sharply during the coronavirus crisis, is a sign of the options available to recent corporate winners to deploy cash they have generated during the pandemic.

Home Depot, which has almost 2,300 retail stores, was “really maxed out in terms of store locations, so what’s going to be its growth vehicle? This could maybe be it”, said Craig Johnson, president of the Customer Growth Partners consultancy.

The deal brings the two Atlanta-based businesses back together after Home Depot sold HD Supply to a group of private equity investors in 2007, shortly before the meltdown in the US housing market.

At the time of the disposal, activist investors argued that the supply division was delivering weaker than required returns and was distracting Home Depot managers from consumer markets.

Home Depot is buying a slimmed down version of HD Supply, which this year struck a deal to sell its construction and industrial business to an affiliate of the private equity group Clayton, Dubilier & Rice for $2.9bn.

Craig Menear, Home Depot chief executive, said in a statement that HD Supply would complement the retailer’s existing presence in the so-called maintenance, repair and operations market.

HD Supply floated on Nasdaq through an initial public offering in 2013, with shares priced at $18 apiece. Today it operates through 44 distribution centres across 25 US states and two Canadian provinces.

There had been signs of under-investment in HD Supply’s business, giving Home Depot the opportunity for improvement, Mr Johnson said.

Including HD Supply’s net cash, the purchase price equates to $8bn in enterprise value. Home Depot said it would use cash it has on hand and also planned to tap capital markets to help fund the acquisition.

Earnings from Home Depot due for release on Tuesday are expected to show that it has performed well during the pandemic, as shoppers have flocked to its stores for supplies.

Americans spending more time at home are undertaking more do-it-yourself projects and also making bigger investments in their properties. Analysts estimate that like-for-like sales at Home Depot surged 17 per cent year on year in its third quarter.

Home Depot said it expected to complete the acquisition of HD Supply in its fourth quarter, which ends on January 31.

JPMorgan advised Home Depot while Goldman Sachs advised HD Supply.

Source: Financial Times