After a 13-year separation, Home Depot is reconnecting with former subsidiary HD Supply in an acquisition valued at roughly $8 billion.
The purchase is a bid on Home Depot’s part to grow its professional customer base instead of just focusing on its “do it yourself” hobbyists. Pending the customary regulatory approvals, the deal is expected to close by the end of January.
The home improvement giant initially sold HD Supply—a purveyor of maintenance, repair and operations (MRO) products and services—to a group of private equity firms for about $10.3 billion in 2007. That group PE included Bain Capital, Carlyle Group and Clayton Dubilier & Rice.
Since that sale, HD Supply jettisoned a number of its assets. The shedding of HD Supply’s power solutions business and waterworks division allowed the company to focus solely on its MRO business, which counts healthcare providers, apartment complexes, hospitality businesses and others among its clients. These customers are sold everything from bleach and plastic ice bucket liners to paint and doors, and are provided additional services such as financing, general contracting and labor.
It was HD Supply’s renewed focus on its MRO business once again made the company an attractive acquisition target.
“Over a period of time the HD Supply business came down to essentially the MRO maintenance facility business that it is today, that we just put the offer in on,” said Craig Menear, Home Depot‘s CEO, during an earning’s call today. “It strategically lines up with what we’re trying to get accomplished in the MRO business, much more so than it did a few years ago. So from a timing standpoint, that’s the logic there.”
Home Depot itself reentered the category in 2015 by agreeing to purchase Interline Brands, a national distributor and direct marketer of broad-line MRO products. That purchase was for at about $1.6 billion in cash. Home Depot sees the $55 billion space as highly fragmented and ripe for growth.
“We have been successfully growing our MRO business organically since our acquisition of Interline in 2015, and this acquisition positions us as the premier provider in the space,” a Home Depot spokesperson explained in an email to Adweek. “The facilities maintenance business has been of strategic interest for The Home Depot for many years, and we believe the HD Supply business represents a significant growth opportunity for The Home Depot that is consistent with and complementary to our current Pro strategy.”
More specifically, the acquisition will boost Home Depot with what it describes as a robust product catalog, value-added service capabilities, an experienced salesforce and a national network of 44 distribution centers in the U.S. and Canada.
During the earnings call, Menear pointed out that the MRO customer is also an important professional customer for Home Depot, one that the home improvement retailer hopes to further cultivate as part of its overall transformation strategy it calls “One Home Depot.” In fact, the merchant’s professional business grew by double-digits in the third quarter, notching its strongest growth this year.
“This deal presents an opportunity to broaden its active file of [professional] customers, especially multi-family accounts which represent [about] 64% of [HD Supply’s] Facilities Maintenance sales,” according to a report led by Jonathan Matuszewski, an analyst at Jefferies. “With a bolstered sales force and enhanced supply chain, we have no doubt [Home Depot] will be a more formidable player in the $55B MRO market for years to come.”
The home improvement retailer is betting that by providing maintenance, repair and operations products to multi-family apartment complexes through HD Supply will inspire these managers and contractors to turn to Home Depot for larger, more thorough renovation projects.