Home improvement chain Lowe’s Cos. is making an $8.8 billion acquisition that intensifies its competition with Home Depot to attract professional builders as customers.
Mooresville, North Carolina-based Lowe’s said on Wednesday it agreed to buy Foundation Building Materials. That company, headquartered in Santa Ana, California, is a North American distributor of interior building products such as drywall, metal framing, ceiling systems, commercial doors and hardware, and insulation. It serves large residential and commercial builders.
With the deal, Lowe’s will gain FBM’s network of over 370 locations in the United States and Canada serving 40,000 professional customers. Sales have been slowing in the DIY portion of Lowe’s and Home Depot’s businesses, so both retailers have been making significant purchases to increase market share in terms of revenue from contractors and builders.
“There is enormous spending in the segment,” Neil Saunders, a retail analyst and managing director at analytics firm GlobalData, said in a note Wednesday. “It is far more fragmented and malleable to disruption. And it plays into the existing strengths of both Home Depot and Lowe’s, which means strong integration and synergistic savings can be found. Pro is basically the new battleground for home improvement. Naturally, with two big giants in the arena, there are likely to be some bruising battles ahead.”
Lowe’s and Home Depot didn’t immediately respond to emails from CoStar News seeking comment on Saunders’ remarks.
Home Depot’s deals
In April, Lowe’s announced it had a deal to acquire Texas-based Artisan Design Group for $1.3 billion as part of its quest to drum up more business with builders and contractors. That firm provides design, distribution and installation services for flooring, cabinets and countertops to homebuilders and property managers.
Atlanta-based Home Depot has also been bolstering its ability to serve pro customers. In June, it said its subsidiary SRS Distribution was buying GMS, a North American building products distributor, for $5.5 billion. Home Depot acquired SRS, a building supplier, for $18.25 billion last year.
There are “significant cross-selling opportunities between FBM and Lowe’s as well as the recently acquired Artisan Design Group,” according to the retailer.
Ruben Mendoza, FBM’s president and CEO, and his senior leadership team will remain at the helm of the company.
Market’s ‘harder side’
Saunders called Lowe’s acquisition of FBM a sensible move.
“While Artisan Design Group has a softer, more design focused proposition, [FBM] addresses the harder side of the market across things like framing and ceiling systems,” he said.
Lowe’s and Home Depot are looking for greater opportunities for growth than home improvement can provide, according to Saunders, and the professional contractor market “is big enough and fragmented enough to allow both players to extract some wins.”
Under the terms of their agreement, Lowe’s will acquire FBM for $8.8 billion in cash. Lowe’s has secured $9 billion in a fully committed bridge financing from Bank of America and Goldman Sachs. The transaction is expected to close in the fourth quarter.