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 from billionaire Brad Jacobs-led rival QXO.
Home improvement retailers have been sprucing up their professional building materials portfolio to cater to contractors at a time when home owners are paring 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 GMS stock’s close on June 18, before any bid was made. Shares of GMS jumped 11% to $108.18 in early trading.
QXO earlier this month made a $95.20 per share offer, or about $5 billion in cash, for GMS and said it was prepared for a hostile takeover if the company’s management did not accept the proposal by June 24.
Including debt, the deal is valued at $5.5 billion, Home Depot 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”.
Georgia-based GMS, which operates a network of more than 300 distribution centers and sells products such as wallboard, ceilings, steel framing and gypsum, will bolster SRS’s distribution footprint across the U.S. and Canada.
“Given HD’s recent efforts to expand their Pro business, we believe the deal makes strategic sense, with a premium takeout multiple largely unsurprising as HD has historically been relatively less valuation sensitive with other acquisitions in the space (i.e., SRS),” said Trey Grooms, analyst at Stephens.
The combined business will have a network of more than 1,200 locations and a fleet of more than 8,000 trucks, according to the statement.
Home Depot had bought SRS Distribution last year in an $18.25 billion deal, while smaller rival Lowe’s acquired Artisan Design for $1.33 billion in April.
In March, QXO clinched an $11 billion deal for Beacon Roofing Supply after a long-drawn battle.
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.
(Reporting by Savyata Mishra in Bengaluru, additional reporting by Anshuman Tripathy and Juveria Tabassum; Editing by Sriraj Kalluvila)
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