The Home Depot Expands Its Reach with Acquisition of GMS through SRS Distribution

The Home Depot Expands Its Reach with GMS Acquisition

In a significant move to bolster its market position, The Home Depot®, recognized globally as the largest home improvement retailer, has formalized an agreement enabling its subsidiary, SRS Distribution Inc., to acquire GMS Inc. This acquisition is poised to enhance The Home Depot's offerings, focusing on professional contractors (Pros) by providing comprehensive construction supply solutions across various project sizes and complexities.

Strategic Growth Initiative

The Home Depot's strategy is clear: to increase its market share among professional contractors. In its ongoing efforts, the company has aimed to create distinct offerings and capabilities that cater specifically to the unique needs of its Pro customers. With the acquisition of SRS in 2024, The Home Depot positioned itself as a leading distributor across numerous vertical markets, including roofing supplies, landscaping, and pool materials.

The inclusion of GMS into the SRS portfolio marks a key step in expanding SRS’s reach as a multi-category distributor of construction materials. GMS is a renowned distributor of specialized products such as drywall, ceilings, steel structures, and other complementary construction materials essential for both residential and commercial projects. This merger promises to enhance product categories and customer relationships that align perfectly with SRS's existing operations.

Comments from Leadership

Ted Decker, president and CEO of The Home Depot, expressed confidence in the acquisition, stating, "The Home Depot acquired SRS as a platform for growth, and SRS has consistently demonstrated exceptional execution and performance. In our first year together, we achieved significant synergies, such as cross-selling new products to Home Depot and SRS customers, driving our commercial credit program forward through the SRS platform, and various initiatives designed to enhance customer value and operational efficiency."

Further emphasizing the impact, Dan Tinker, CEO of SRS, noted, "The combination of GMS and SRS will provide our residential and commercial Pros with more fulfillment and service options than ever before. Together, we will create a network of over 1,200 locations and a fleet of more than 8,000 trucks capable of executing tens of thousands of deliveries daily."

GMS's Commitment to Excellence

John C. Turner, Jr., GMS president and CEO, shared his enthusiasm about joining forces with SRS and The Home Depot. He remarked, "This transaction brings significant value to our customers, suppliers, and team. Since GMS was founded, our unwavering commitment has been to be the leading distributor in our markets and provide exceptional service. We anticipate offering a wider array of products and services and delivering superior value to our contracting customers as part of the SRS and Home Depot family."

With GMS’s leadership team continuing to steer the company within SRS's structure, the merger is designed to facilitate accelerated growth and capitalize on promising market opportunities.

Transaction Terms

Under the merger agreement, a subsidiary of SRS will initiate a cash tender offer for all outstanding shares of GMS at an offering price of $110 per share. This valuation reflects approximately $4.3 billion in equity and implies a total enterprise value, including net debt, of about $5.5 billion. The completion of the tender offer is contingent upon customary closing conditions, including obtaining necessary regulatory approvals and tendering a sufficient number of GMS shares that represent a majority of shares outstanding at that time. The tender offer is expected to close by the end of the fiscal year 2025.

If successful, a wholly-owned subsidiary of SRS will merge with GMS, with all outstanding shares of GMS not tendered in the offer converting to the right to receive the same $110 per share cash amount offered to GMS shareholders in the tender offer.

The transaction plans to be financed through available cash and debt, while maintaining the company's intent to return to a leverage ratio of 2.0x by the end of fiscal year 2026.

Expected Impact on Earnings

This strategic acquisition is anticipated to increase adjusted earnings per share (EPS) in the first year post-closing, excluding synergies. The financial details of this transaction reflect a significant investment aimed at enhancing The Home Depot's competitive stance in the construction and home improvement market.

Advisory Team

BofA Securities and J.P. Morgan Securities LLC served as financial advisors, while Weil, Gotshal & Manges LLP acted as legal counsel for The Home Depot in this agreement.

About the Companies

The Home Depot operates over 2,350 retail stores and manages more than 325 distribution centers, employing over 470,000 associates and catering to customers across the United States and beyond. SRS Distribution, founded in 2008, has quickly evolved into one of the fastest-growing construction product distributors in the U.S., while GMS operates a network of distribution centers providing residential and commercial contractors with essential construction solutions. This merger thus signifies a transformative moment for both companies, enhancing their collective capabilities and service offerings in the market.