Home Depot targets contractors, rivals with $4.3 billion deal for GMS

By Savyata Mishra and Juveria Tabassum

(Reuters) -Home Depot said on Monday unit SRS Distribution has agreed to acquire specialty building products distributor GMS for about $4.3 billion, stepping up its efforts to capture more demand from professional contractors.

The deal also comes amid threats of a hostile takeover for GMS from billionaire Brad Jacobs-led rival QXO.

Home improvement retailers have been sprucing up their professional building materials portfolio to cater to contractors as homeowners pare back on spending big money on large-scale renovation projects.

SRS has offered $110 per GMS share held, representing a premium of nearly 36% to the stock’s close on June 18, before the QXO bid was made public. Shares of GMS jumped 11.8% to $108.83 in early trading.

QXO made a $95.20 per share offer, or about $5 billion in cash, and said it was prepared for a hostile takeover if GMS’ management did not accept the proposal by June 24.

Including debt, the deal is valued at $5.5 billion, Home Depot (NYSE:HD) said.

QXO declined to comment about the takeover proposal on Monday.

GMS declined to comment beyond Monday’s statement to a Reuters query. The company’s chairman said GMS reached a deal with Home Depot after considering all "other potential opportunities".

The combined business will bolster SRS’ distribution footprint across the U.S. and Canada, with a network of more than 1,200 locations and a fleet of more than 8,000 trucks, according to the statement.

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"We like this deal from a strategic standpoint as it fits in with HD’s growth plans within the ’complex pro’ business," said D.A. Davidson analyst Michael Baker. A higher bid from QXO was unlikely, he said.

Home Depot’s deal for GMS follows its $18.25 billion purchase of SRS last year, which company executives during its latest quarterly results said was performing above expectations.

Smaller rival Lowe’s (NYSE:LOW) acquired Artisan Design for $1.33 billion in April while QXO in March clinched an $11 billion deal for Beacon Roofing Supply (NASDAQ:BECN) as consolidation gathers pace in the industry.

The GMS transaction is expected to close by the end of fiscal 2025, and will be funded through cash on hand and debt.

BofA Securities and J.P. Morgan Securities are the financial advisers to Home Depot on the deal.

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