Home Depot buys back HD Supply in $8B deal

Dive Brief:

The Home Depot on Monday announced it will acquire HD Supply Holdings, a maintenance, repair and operations products wholesale distributor, for about $8 billion.
Home Depot will purchase any outstanding HD Supply common stock for $56 a share as part of the deal, which it expects to close by the end of its fourth quarter in early 2021, subject to customary closing conditions.
The deal brings HD Supply back under Home Depot's roof after it was previously sold off in 2007 to private equity investors Bain Capital Partners, The Carlyle Group and Clayton, Dubilier & Rice.

Dive Insight:

As the home transformed into the office and the classroom for some, and became the place many spent the majority of their time, consumers began investing more into their spaces.

The result was a boost in sales for home goods and home improvement retailers during the pandemic, at a time when many in the industry struggled to stay afloat.

Home Depot in August reported second quarter net sales were up 23.4% to $38 billion, while its comparable sales also ticked up 23.4%. The home improvement retailer also reported net income increased 24.5% year over year to $4.3 billion.

According to GlobalData Retail research, 73% of consumers took on a home or garden-related project during the second quarter of this year, up from 56% last year, and that trend is expected to continue in the months to come.

"With more comfort having Pros in their homes, low interest rates and rising home prices, consumers are increasingly pursuing bigger-ticket projects, a trend [that] could propel the home improvement market for many months, if not years," Wedbush analyst Seth Basham said in a Wednesday note.

Home Depot is already the choice among professionals, according to a note from GlobalData Retail Managing Director Neil Saunders in August, so bringing HD Supply back into its business might further solidify that position and improve its comp gap with Lowe's.

"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," Home Depot CEO Craig Menear said in a statement. "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."

Home Depot previously sold off HD Supply in 2007 to private equities companies Bain Capital Partners, The Carlyle Group, and Clayton, Dubilier & Rice in a deal totaling $10.3 billion. But the deal came in the midst of the U.S. credit crisis and the housing market downturn that followed. The deal was revised to $8.5 billion in August 2007. Six years later, HD Supply filed to go public.

The announcement of the deal also comes just days after Lowe's was reportedly holding preliminary talks to buy HD Supply, according to Bloomberg.