Home Depot seals biggest-ever deal by buying building-products provider SRS for $18.25 billion

By Jamie Chisholm and Ciara Linnane

Deal will allow Home Depot to serve landscapers, roofers and pool contractors

Home Depot Inc. said early Thursday that it had agreed to buy SRS Distribution Inc., a building-products provider, for about $18.25 billion, including debt.

SRS, which has a 760-branch network across 47 states and a fleet of more than 4,000 trucks, serves professional customers such as landscapers, roofers and pool contractors. The deal, which is the biggest in Home Depot's history, is expected to boost the company's (HD) total addressable market by $50 billion, elevating it to about $1 trillion.

"SRS complements The Home Depot's capabilities and will enable the company to better serve complex project purchase occasions with the renovator/remodeler, while also establishing The Home Depot as a leading specialty trade distributor across multiple verticals," the buyer said.

Brian Mulberry, a client portfolio manager at Zacks Investment Management, which has $15.1 billion in assets under management, said the deal represents a clear growth strategy for Home Depot.

"They have built out their 'PRO' systems targeted at contracting professionals and over the past three years, it was mainly helping with remodeling existing homes," Mulberry said. "This move is a shift in that SRS is a key supplier of roofing materials for new homes. Clearly Home Depot sees opportunity in the moment as current home inventories are stagnant causing prices to rise again."

The deal is expected to close by the end of fiscal year 2024 and will be financed using cash on hand and debt.

It's expected to reduce per-share earnings on a generally accepted accounting principles, or GAAP, basis due to amortization expenses, but will boost cash earnings per share in the first year after closing.

SRS had total sale of about $10 billion in 2023 and adjusted Ebitda, or earnings before interest, taxes, depreciation and amortization, of about $1.1 billion, Home Depot Chief Executive Ted Decker told analysts on a call to discuss the deal.

"The beauty of SRS is that this acquisition gives us an entry point into becoming a leading multitrade distributor to better serve the needs of specialty trade customers and a new avenue by which deserve to serve the complex project," he said, according to a FactSet transcript.

The SRS management team, led by CEO Dan Tinker, will stay in place.

Home Depot said it is planning to maintain its current credit ratings. S&P Global Ratings has an A rating on the company, while Moody's rates it at A2, placing it firmly in the investment-grade category.

The company expects to have an adjusted debt-to-Ebitda ratio of about 2.5 times when the deal closes, and will aim to reduce that to about 2.0 times over the next two years through a combination of debt paydown and Ebitda growth, Chief Financial Officer Richard McPhail said on the call.

Home Depot will retain its capital-allocation strategy with a focus on investing in the business and paying the dividend, he said. But it will not buy back any of its stock until it reaches its leverage target.

Shares of Home Depot were down 1.1% Thursday morning but have gained 36% in the last 12 months, while the S&P 500 SPX has gained 32%.

-Jamie Chisholm -Ciara Linnane

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03-29-24 0718ET

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