Home Depot buys Hughes Supply
Increased sales to professional builders is aim of the acquisition
Shareholders of Hughes Supply, which sells everything from cement to heating and air conditioning systems, will receive $46.50 a share, 21 percent more than Monday's closing stock price. The company had $4.42 billion in sales in the last fiscal year and operates more than 500 stores in 40 states, Atlanta-based Home Depot said in a statement Tuesday.
The purchase will help double the size of Home Depot's supply division to $12 billion in revenue, allowing the company to continue its drive to win professional customers. Chief Executive Officer Robert Nardelli has made three acquisitions in the past year to expand sales beyond people who renovate and repair their homes.
"They're doing the right things and getting in the right areas," said Marvin Roffman of Roffman Miller Associates in Philadelphia, which owns 125,000 Home Depot shares among $370 million in assets. "The professional builder market is a $400 billion-plus market. When you're the second-largest retailer, if you want to continue to grow you have to continue to go after really large targets."
Home Depot is making acquisitions as it has become more challenging to find new store locations and sales growth lags behind Lowe's Cos., the second-largest home-improvement retailer.
Home Depot has about 2,000 stores, while Lowe's has about 1,175 and is still expanding into large U.S. cities. Home Depot boosted sales an average of 12 percent a year over the past five years, compared with an average gain of 18 percent at Lowe's, based in Mooresville, N.C.
"This deal makes a lot more sense than anything they've shown us recently," said Dan Poole, who helps manage about $34 billion at Cleveland-based National City Corp., including Lowe's and Home Depot shares. "They're doubling the size overnight and expect it to be accretive in year one. It's less of a reach and more in step with the current business."
In the transaction announced Tuesday, Home Depot said it will assume $285 million in debt. The Home Depot supply division accounts for about 4 percent of the retailer's revenue. The company was advised by Morgan Stanley and Cleary Gottlieb Steen & Hamilton LLP.
Hughes Supply sells products such as fire hydrants and water meters and heating, ventilation and air conditioning parts to plumbing and electrical contractors. Its customers also include utilities, cities and property management companies.
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