Home Depot Acquires Specialty Trade Distributor Srs for $18.25 Billion

Home Depot Inc. announced on Thursday morning its agreement to acquire SRS Distribution Inc., a provider of building products, for approximately $18.25 billion, inclusive of debt.

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SRS boasts a network of 760 branches spanning 47 states, along with a fleet of over 4,000 trucks. Its clientele primarily consists of professional customers such as landscapers, roofers, and pool contractors. This acquisition, marking the largest in Home Depot's history, is anticipated to expand the company's total addressable market by $50 billion, propelling it to approximately $1 trillion.

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According to Home Depot, the acquisition of SRS will complement its existing capabilities and enhance its ability to cater to complex project purchases, particularly within the renovator/remodeler segment. Additionally, it positions Home Depot as a prominent specialty trade distributor across various sectors.

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Brian Mulberry, a client portfolio manager at Zacks Investment Management, views this deal as a strategic move for Home Depot, emphasizing the company's growth trajectory. Mulberry notes that while Home Depot has previously focused on assisting with remodeling existing homes through its 'PRO' systems tailored to contracting professionals, the acquisition of SRS signifies a shift towards supplying roofing materials for new home construction. This strategic shift underscores Home Depot's recognition of opportunities amid stagnant home inventories and rising prices.

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The transaction is slated to conclude by the end of fiscal year 2024 and will be funded through a combination of cash reserves and debt. Although the acquisition is anticipated to initially dampen per-share earnings on a GAAP basis due to amortization expenses, it is projected to enhance cash earnings per share in the first year post-closing.

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Home Depot CEO Ted Decker provided insights into SRS's financial performance during a call with analysts. SRS recorded total sales of approximately $10 billion in 2023, with adjusted EBITDA standing at around $1.1 billion. Decker emphasized the strategic importance of the acquisition, positioning Home Depot as a leading multitrade distributor catering to specialty trade customers.

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Under the terms of the deal, SRS's existing management team, led by CEO Dan Tinker, will continue to lead the company.

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Home Depot reiterated its commitment to maintaining its current credit ratings, with S&P Global Ratings assigning it an A rating and Moody's rating it at A2, both placing the company in the investment-grade category. The company aims to achieve an adjusted debt-to-EBITDA ratio of approximately 2.5 times at the deal's closure, with plans to reduce it to about 2.0 times over the ensuing two years through a combination of debt repayment and EBITDA growth, as outlined by Chief Financial Officer Richard McPhail during the call.

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While Home Depot intends to adhere to its capital-allocation strategy, prioritizing investments in the business and dividend payments, it will refrain from stock repurchases until it attains its leverage target.

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Home Depot's stock experienced a 1.1% decline on Thursday morning, despite posting a 36% gain over the past 12 months, outpacing the S&P 500's 32% increase.

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