The Home Depot Inc. is out to build its presence in the maintenance, repair and operations (MRO) business with a “definitive agreement” to purchase for about $9 billion HD Supply Inc., an MRO distribution business it sold 13 years ago.

Craig Menear, chairman and CEO, The Home Depot Inc.

Home Depot—recognized as the world’s largest home improvement retailer with both B2B and retail sales on HomeDepot.com as well as through its chain of more than 2,200 stores—has made a cash tender offer to purchase all of the outstanding shares of HD Supply Holdings Inc. at $56 per share, the two companies said today. With 162 million shares outstanding, the offer is valued at almost $9.1 billion. Including net cash, the deal has an enterprise value of about $8 billion, the companies said.

“The MRO customer is highly valued by The Home Depot, and this acquisition will position the company to accelerate sales growth by better serving both existing and new customers in a highly fragmented $55 billion marketplace,” Craig Menear, chairman and CEO of The Home Depot, said in announcing the deal. “HD Supply complements our existing MRO business with a robust product offering and value-added service capabilities, an experienced salesforce that enhances the strong team we have in place, as well as an extensive, MRO-specific distribution network throughout the U.S. and Canada.”

Joe DeAngelo, chairman and CEO of HD Supply, added: “We are confident that this will position both The Home Depot and HD Supply for continued growth and success in the MRO distribution space.”

Competing in a tough market

Joe DeAngelo, CEO,
HD Supply Inc.

Home Depot said it expects to complete the acquisition during its fiscal fourth quarter, which ends Jan. 1, 2021. Home Depot reported $110.2 billion last year and is ranked No. 5 in the Digital Commerce 360 Top 1000 with more than $10 billion in web sales.

The deal for HD Supply comes at a time when prominent MRO distributor W.W. Grainger Inc.—which did more than half of its $11.5 billion in sales last year via ecommerce—is reporting gains in market share in the fragmented MRO market and as Amazon Business is recognized as a rising competitor in the industry. Amazon Business reported in 2018 that it had reached “more than $10 billion in annualized sales.”

HD Supply, which reported $6.1 billion in sales for the fiscal year ended Feb. 2, 2020, sells products ranging from power tools and power generators to janitorial supplies and heating, ventilation and air-conditioning (HVAC) equipment to some 300,000 customers. It doesn’t break out ecommerce figures but says it processes much of its sales through HDSupplySolutions.com and a site for home improvement contractors, HDSupplyHIS.com.

‘Every expectation’ to expand market share

In a Sept. 9 earnings call with investment analysts for the second quarter ended Aug. 2, DeAngelo said HD Supply was on course to build on the market share gains it had made during the quarter and the month of August. “We have every expectation to maintain and expand our market share gains realized thus far in 2020, and we expect that our end markets will continue to improve throughout the remainder of the year,” he said, without specifying the share gains.

HD Supply is “a good business with solid margins,” Chuck Grom, an analyst with Gordon Haskett, said in a note. The company has faced underinvestment in recent years, giving the buyer the opportunity to improve the business, he said. The tie-up could add as much as 33 cents a share to Home Depot’s earnings, Grom added.

The deal adds to the momentum for Home Depot, which along with rival Lowe’s Cos. was deemed an essential retailer early in the pandemic and remained open even as many stores shut down for months. The HD Supply transaction, to be funded by cash on hand and debt, is expected to be completed in Home Depot’s fiscal fourth quarter, which ends Jan. 31.

Professional customers currently account for about 45% of Home Depot’s sales, and HD Supply could help it cement its leadership position, says Drew Reading, an analyst with Bloomberg Intelligence. “Though HD Supply has exposure to slower growth commercial end-markets, sales trends among pros continue to improve and may accelerate in 2021.”

Home Depot’s connections with HD Supply are rooted in the late 1990s. In 1997, Home Depot acquired MRO distributor Maintenance Warehouse, launched an ecommerce site for it a year later, then expanded its operations before selling it in 2007 to private equity firms Bain Capital LLC, Carlyle Group, and Clayton, Dubilier & Rice.

Last month, HD Supply sold off its White Cap construction and industrial products business, including the ecommerce site WhiteCap.com, in a transaction valued at about $4 billion to an affiliate of investment firm Clayton, Dubilier & Rice and The Sterling Group. As part of that deal, White Cap was combined with Construction Supply Group.

Bloomberg News contributed to this report.

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