The Home Depot Inc. made a major play to expand its B2B efforts today, buying a distributor that generates more than a quarter of its sales online. 

The home improvement retailer, No. 10 Internet Retailer 2015 Top 500 Guide, agreed today to acquire Interline Brands Inc., a national distributor and direct marketer of supplies companies use in maintenance, repair and operations, a category known as MRO. Home Depot will pay $1.625 billion in cash to acquire Interline from current ownership including Goldman Sachs Capital Partners, P2 Capital Partners LLC and management. 

“Addressing the needs of our pro customers is a top priority for The Home Depot,” says chairman, CEO and president Craig Menear. 

Pro customers, Home Depot’s term for contractors and other business customers, account for 35% of total sales, and the B2B market is one of Interline’s major strengths. Interline brings to the deal an outside sales force of about 1,160 field sales representatives and 470 inside sales and customer service representatives, fulfillment capabilities in the residential maintenance, repair and overhaul (MRO) market, and a distribution network of 93 locations throughout the U.S., Canada and Puerto Rico, according to InterlineBrands.com. 

Interline also operates more than 10 brand-specific websites including Amsan.com and Sexauer.com, serving institutions; Wilmar.com and e-Musa.com serving multi-family housing facilities; and e-Barnett.com and e-HardwareExpress.com, serving residential customers. Over time, those websites will be integrated into the business, a Home Depot spokesman says. Interline, No. 90 in the 2015 Top 500, reported 2014 online sales of $434.5 million, up by 15.2% from $377.3 million in 2013. E-commerce accounted for 26% of $1.68 billion in total sales in 2014, up 4.9% from 2013. 

Interline gains access to Home Depot’s list of more than 1 million SKUs and services to round out its own offerings. “Through this partnership, we believe we can bring a truly interconnected solution to customers, providing them with a single source for all of their maintenance, repair and operation needs, whenever and wherever they need it,” says Michael Grebe, Interline’s chairman and CEO. 

Interline also gives Home Depot fulfillment and delivery skills. Interline says it provides next-day delivery to 98% of the U.S. population and same-day delivery in most major metropolitan areas. 

That’s important to MRO customers who expect rapid delivery, and a key factor in bringing Interline into the fold, a Home Depot spokesman says. Home Depot already makes deliveries of construction supplies like lumber, drywall and shingles, but Interline brings an expanded product line. Products Interline carries include plumbing; hardware, tools and fixtures; heating, ventilation and air conditioning; electrical and lighting; appliances and parts; security and safety; and other miscellaneous maintenance products. 

The Interline acquisition, which is expected to close sometime in Home Depot’s third quarter ending Nov. 1 pending applicable regulatory approval and customary closing conditions, including the repayment of Interline’s outstanding senior notes, will help Home Depot gain a bigger piece of the MRO marketplace. The U.S. MRO marketplace is about $150 billion, the Home Depot spokesman says. The portion Interline and Home Depot serve is about $50 billion and the combined companies hold about 5% of it, he says. That market includes maintenance departments in health and hospitality facilities (hospitals and hotels), multifamily dwellings (apartment buildings) and institutions (government buildings and schools). With the Interline acquisition “we feel we could gain a considerable presence in that marketplace,” the spokesman says. 

Home Depot’s acquisition of Interline supports its stated goal of providing “interconnected” retail, where stores support e-commerce and vice versa. More than one-third of Home Depot’s online transactions in 2014 involved buying online and picking up in a store and the company is currently piloting a service that fulfills and delivers online orders from stores. 

Over the past several years Home Depot has invested about $300 million to upgrade its e-commerce distribution capability and better job integrate its web and store inventory and supply chain. Home Depot added $1 billion in new web sales in 2014, posting total web sales of $3.5 billion, in large measure because of effective use of stores, according to senior vice president and president of online Kevin Hofmann during a June presentation to analysts at the sixth annual Goldman Sachs dotCommerce conference in New York. Total sales for 2014 were $20.89 billion, up by 6.1% from the prior year. 

Home Depot also announced today that Bill Lennie, president, The Home Depot Canada, will oversee the company’s pro, MRO and installation business, as well as the integration of Interline. Lennie was named to fill the newly created position of executive vice president, outside sales and service. Lennie’s prior responsibilities include merchandising, global sourcing, proprietary brands, and oversight of Your Other Warehouse (YOW), a plumbing distributor owned by Home Depot. 

Home Depot won the inaugural Internet Retailer of the Year Award, which was presented at the Internet Retailer Conference & Exhibition in June. The award goes to the Internet Retailer Top 1,000 web merchant that demonstrated extraordinary performance in all aspects of e-commerce activity and on all major e-commerce metrics, according to the judging criteria. In 2014 Home Depot’s e-commerce sales increased 37% to $3.76 billion, a growth rate twice that of Amazon.com Inc.’s. 

To download a copy of the Internet Retailer Special Edition: IR Excellence Awards click here.

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