The $18.25 billion acquisition of McKinney-based SRS Distribution Inc. by Home Depot Inc. is one of the largest deals involving a North Texas company in recent months.
Executives for Atlanta-based Home Depot (NYSE: HD) think the deal increases the company’s addressable market by $50 billion as they go after “professional customers.” SRS sells materials to professional roofers, landscapers and pool contractors across a network of more than 760 stores. It has 11,000-plus employees and a fleet of more than 4,000 trucks to deliver materials to job sites.
The acquisition is expected to close by the end of Home Depot’s 2024 fiscal year, which extends to January.
The deal also has implications for McKinney, where SRS expanded its headquarters five years ago. Below, Dallas Business Journal dives into some of the big questions surrounding the deal.
What does SRS Distribution do?
The company was founded in 2008 in McKinney and has grown into one of the largest distributors of roofing materials and building products in the U.S. Between 2018 and 2023, the company quadrupled revenue to about $10 billion, according to an investor presentation by Home Depot.
Two private equity firms, Boston-based Berkshire Partners and Los Angeles-based Leonard Green & Partners, currently own SRS. Berkshire has backed SRS since 2013. Leonard Green entered the fold in 2018 through a leveraged buyout that valued SRS at more than $3 billion and included Berkshire retaining a stake in the business, according to PitchBook Data.
SRS considered a potential headquarters move to elsewhere in Collin County but in 2019 announced plans to build a 100,000-square-foot corporate campus in McKinney’s Hub 121 entertainment district.
An incentives agreement with McKinney enabled SRS to receive up to $1.29 million for adding 150 employees and retaining existing positions over 10 years. At the time, SRS had about 150 employees in McKinney. CEO Dan Tinker said at the time SRS would create another 160 jobs over the next decade with the heaviest concentration coming from information technology, accounting and finance positions.
SRS declined to respond to questions about how many employees the company currently has in McKinney and how the deal may impact the incentives agreement.
Why is Home Depot buying SRS?
In short, executives at Home Depot described the deal as “a growth company buying a growth company.” Executives said Home Depot will have a total addressable market of $1 trillion once the deal closes.
About half of Home Depot’s sales currently come from pro customers, CEO Ted Decker said during a conference call with analysts. Home Depot’s sales totaled $157.4 billion in its fiscal year ending Jan. 28. The acquisition of SRS will help Home Depot gain a greater share of pros’ wallets.
“We know that virtually all pros shop at the Home Depot today for some of their needs,” Decker said. “Over the last several years, we’ve been building out capabilities required to gain a greater share of wallet with the larger pros’ more complex purchase occasion, targeting residential pro customers with a focus on renovator remodelers, small home builders, and property investors. The ecosystem that we’re building is focused on the general contractor who shops cross category and benefits from consolidating product purchases.”
Richard McPhail, executive vice president and chief financial officer of Home Depot, said SRS has built an “impressive track record” of sales and earnings growth.
“If you just look over the long run and compare them to other residential specialty trade distributors, they have a long and steady track record of growing sales and EBITDA faster than their competition,” McPhail said.
SRS had $650 million in revenue in 2013, according to its private equity owners. That means it grew revenue almost fourfold between 2013 and 2018, before doing so again the next five years.
The company had earnings before interest, taxes, depreciation and amortization of $1.1 billion last year, according to Home Depot’s investor presentation.
SRS has grown throughout its history in part due to acquisitions of its own. The company’s total debt is currently about $5.8 billion, or 58% of revenue, according to Home Depot’s presentation.
How is the acquisition being financed?
A subsidiary of Home Depot will acquire SRS for a total enterprise value, including net debt, of roughly $18.25 billion, according to Home Depot’s announcement. Home Depot plans to fund the purchase through cash on hand and raising debt through the capital markets, McPhail said.
Home Depot intends to maintain its current credit ratings. While Home Depot expects the deal to cause a reduction in earnings due to amortization expenses, the company also said the purchase will grow earnings from a cash perspective in the first year after closing.
“We expect this acquisition to accelerate our sales and earnings growth while delivering exceptional returns on capital,” McPhail said.
When is the deal expected to close?
Home Depot executives said they expect the deal to close by the end of its fiscal year next January. The deal requires regulatory approval.
Tinker and other senior SRS leaders will remain in place.
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