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Home Depot's (NYSE:HD) decision to acquire residential specialty trade distribution company SRS Distribution in a deal valued at around $18.25B is being lauded by analysts on Thursday.
Wells Fargo analyst Zachary Fadem said the deal marks another milestone in the home improvement retailer's journey to own the Pro ecosystem. Fadem noted that the strategic rationale is sound and the deal multiple of 16X is fair. Looking ahead, SRS is anticipated to increase HD's cyclical recovery potential into 2025 and will boost the long-term sales algorithm.
"The deal adds new specialty verticals, is +LSD% annualized accretive and adds key capabilities (trade credit, sales, systems, etc.) that would've otherwise taken years to build internally. The asset leans needs-based w/ lower cyclicality, and w/ SRS leadership (CEO Dan Tinker & team) staying on, we see a new platform for both organic/inorganic LT growth."
SRS's 760 branches spread across 47 state sell a mix of roofing and pool-related products through a sizable pro sales force and truck fleet. Of note, Home Depot (HD) expects SRS to be accretive to cash EPS in the first year. Looking ahead, Wells Fargo does not expect regulatory hurdles to be an issue and thinks integration risk is minimal given HD's track record with M&A, management continuity, and SRS on one single ERP system firm wide. Meanwhile, Oppenheimer analyst Brian Nagel called the purchase price of SRS meaningful. However, he still views the deal favorably as it is seen as allowing Home Depot (HD) to more efficiently penetrate the large, fragmented professional market.
Shares of Home Depot (HD) were down 0.66% in afternoon trading. Pool industry supplier Pool Corporation (POOL) was 2.35% lower and SiteOne Landscape Supply (SITE) peeled off 4.65% in downward moves that may be related to competitive concerns.