The Home Depot is moving to expand its ability to serve professional contractors and home builders with its planned $5.5 billion acquisition of GMS, adding about 400 distribution centers and service centers to its portfolio.
Atlanta-based Home Depot, the world's largest home improvement retailer, on Monday said it had entered into a definitive agreement for its subsidiary, SRS Distribution, to purchase GMS, a North American building products distributor. The pending deal reflects an equity value of roughly $4.3 billion, with a total enterprise value including net debt of about $5.5 billion. The transaction is expected to be completed by Jan. 31 next year.
Home Depot beat out an unsolicited bid from Greenwich, Connecticut-based QXO to purchase GMS. That company, led by billionaire Brad Jacobs, in the past month offered to acquire GMS for $95.20 per share in cash for a total transaction value of about $5 billion. QXO — describing itself as the largest publicly traded distributor of roofing, waterproofing and complementary building supplies in the United States — threatened to take its offer directly to GMS’s shareholders if its deal wasn't quickly accepted.
QXO said it aimed to become the leader in the $800 billion building products distribution industry. Both Home Depot and its direct competitor, Lowe's Cos., have been making acquisitions as they pivot to increase their sales from professional contractors and builders. That shift comes as soaring revenue from the pandemic, when Americans stuck at home got busy making improvements to their residences, plummeted.
Home Depot said it's looking to grow "its share of wallet with professional contractors" by creating offerings to serve that segment across all their projects, "from large, complex jobs to smaller renovations and repairs."
Tucker, Georgia-based GMS, founded in 1971, operates a network of more than 320 distribution centers offering wallboard, ceilings, steel framing and complementary construction products. In addition, the company has nearly 100 tool sales, rental and service centers, selling building supplies to its residential- and commercial-contractor customer base across the United States and Canada.
Latest deal
Last year, Home Depot acquired SRS, headquartered in McKinney, Texas, for $18.25 billion to drive growth with professional building customers. SRS operates under a variety of local brands encompassing more than 800 locations across 48 states.
GMS brings "differentiated capabilities, product categories and customer relationships that are highly complementary to SRS's business," and will broaden its distribution footprint across the United States and Canada, according to Home Depot.
"The combination of GMS and SRS will provide the residential and commercial Pro customer with more fulfillment and service options than ever before," Dan Tinker, CEO of SRS, said in a statement.
He added that "together, we'll create a network of more than 1,200 locations and a fleet of more than 8,000 trucks capable of making tens of thousands of jobsite deliveries per day."
John Turner Jr., GMS president and CEO, as well as his senior team will continue to lead GMS as part of the SRS organization.
Lowe's a buyer, too
In April, Lowe's took a tack similar to Home Depot to expand its business with contractors when it announced it was acquiring Artisan Design Group for $1.3 billion. Artisan supplies interior finishes to the single-family and multifamily industry.
Under the terms of the GMS merger agreement, a subsidiary of SRS will launch a cash tender offer to purchase all outstanding shares of GMS common stock for $110 per share.
That per-share consideration represents a premium of roughly 36% to GMS’s share price as of June 18, according to the company.
If the tender offer is successfully completed, a wholly owned subsidiary of SRS will merge with and into GMS.
As a result, all the outstanding shares of GMS that were not tendered in the tender offer will be converted into the right to receive the same $110 per share in cash offered to GMS shareholders in the tender offer.
The transaction is expected to be funded through cash on hand and debt.
For the record
BofA Securities and J.P. Morgan Securities served as financial advisers and Weil, Gotshal & Manges served as legal counsel to The Home Depot in connection with the transaction. Jefferies is acting as financial adviser and Alston & Bird and Richards, Layton & Finger are acting as legal advisers to GMS.