HD Agrees to Buy GMS to Strengthen Its SRS Distribution Unit

The Home Depot, Inc. HD is focused on creating a seamless experience for customers. The company has been progressing well on its "One Home Depot" investment plan, which focuses on expanding the supply chain, technology investments and digital enhancements.

In the latest development, the company has agreed to acquire GMS Inc. GMS, for its specialty trade distribution subsidiary, SRS Distribution Inc. ("SRS"). GMS, which is a major North American specialty building products distributor, runs a network of distribution centers offering wallboard, ceilings, steel framing and more complementary products in the United States and Canada.

More on Home Depot’s Latest News

Per the merger terms, a subsidiary of SRS will begin a cash tender offer to acquire the entire outstanding shares of GMS’ common stock for $110 a share, representing a total equity value of roughly $4.3 billion and a total enterprise value (including net debt) of around $5.5 billion.

The consummation of this tender offer is subject to customary closing conditions, with the receipt of necessary regulatory approvals and the tender of a number of shares of the common stock representing most of the then-outstanding shares. This transaction, which is anticipated to be accretive to adjusted EPS in the first year post close excluding synergies, is likely to be concluded by fiscal 2025. This will be financed through cash and debt, and is not anticipated to alter the company's plan to return to a 2.0x leverage ratio by fiscal 2026 end.

If the tender offer is effectively completed, a completely-owned subsidiary of SRS will merge with and into GMS, and all the latter’s outstanding shares not tendered in the tender offer will be converted into the right to obtain the same $110 per share in cash offered to GMS’ shareholders within the tender offer.

GMS’ outstanding capabilities, product categories and customer relationships will greatly complement SRS' business today, hence expanding its distribution footprint across the US and Canada. This acquisition will boost SRS’ vision of being a key multi-category building materials distributor by bringing an adjacent vertical that enhances its existing business.

Both units will provide a unique range of fulfillment and service options to the residential and commercial Pro customers. On a combined basis, they will establish a network of above 1,200 locations and a fleet of over 8,000 trucks capable of making tens of thousands of jobsite deliveries daily.

More on Home Depot

Home Depot remains focused on expanding its business and is positioned to capture market share. The company has been creating an interconnected experience for customers, enhancing the pro wallet through its unique ecosystem of capabilities and expanding its store footprint.

The company’s interconnected retail strategy and robust technology infrastructure have been encouraging. Improved search capabilities, an enhanced Pro site experience and strong fulfillment capabilities have been driving online conversions. This Zacks Rank #3 (Hold) company’s strategy of providing an interconnected experience resonates well with customers.

Shares of this home-improvement retailer have gained 12.1% compared with the industry’s 7.8% growth in the past year.

Key Picks in Retail

We have highlighted better-ranked stocks, namely FGI Industries FGI and Haverty Furniture Companies HVT.

FGI Industries, which is a supplier of kitchen and bath products, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for FGI’s current financial-year sales indicates growth of 5.5% from the year-ago figure. The company delivered a trailing four-quarter earnings surprise of 70%, on average.

Haverty Furniture, a home-furnishings retailer in the Southern and Midwestern regions, currently has a Zacks Rank #2 (Buy). HVT delivered an average earnings surprise of 62.8% in the trailing four quarters.

The Zacks Consensus Estimate for HVT’s current financial-year sales indicates growth of 3.9% from the year-ago figure.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research