MDM Podcast: A Home Depot-SRS Megadeal Breakdown - Modern Distribution Management

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MDM Podcast: A Home Depot-SRS Megadeal Breakdown

Mike Hockett and Craig Webb break down the key details of the combination, why it makes sense for Home Depot and why this was likely the long-term play for SRS all along.
Home Depot SRS Podcast

Unless you were living under a rock, you saw last week that The Home Depot announced plans to buy building materials distributor SRS Distribution for a whopping $18.25 billion dollars in a deal expected to close by the end of 2024.

It’s not just a major acquisition. It’s the biggest acquisition involving a wholesale distributor in at least a decade — maybe ever.

I did an analysis dive into the transaction details and some of the questions it raises in a Premium piece, but a deal of this magnitude deserves further inspection. So, it was the focus of our latest podcast, which we recruited a fellow industry analyst who specializes in building materials markets.

Craig Webb

My guest for this episode was Craig Webb, who has covered lumber, building materials and construction supply dealers for nearly 20 years. The past six have been as President of Webb Analytics — a consulting firm he launched to provide insights, data and connections to help insiders and investors make better decisions.

For Webb, the Home Depot-SRS deal is as big of news as there is.

“I nearly choked on my Raisin Bran when I saw the news after I woke up and realized, ‘Oh my God, we’ve got a story,’” he told me, elaborating that it’s the largest deal since Builders FirstSource and BMC merged at the start of 2021, yet much bigger.

I was curious to get Webb’s thoughts on why Home Depot wanted SRS and its 760+ branches nationwide, nearly 11,000 employees and $9.8 billion in annual revenue. We discussed how rather than just gaining scale with pro contractor customers, the deal adds a new component to Home Depot’s existing general industrial, MRO and lumber offerings by suddenly adding major roofing, landscaping and pool supply capabilities that it didn’t have before. It’s the company’s biggest move yet to cater to the ‘complex pro’ that buys cross-categories in contractor supply — helping to become a one-stop-shop for any need a pro has.

Additionally, Home Depot cited SRS’ sophisticated trade credit program and delivery fleet as part of what made it attractive.

“One of the interesting things (Home Depot) brought up during their call with analysts is that SRS has a long history with credit risk management — selling things on credit. Home Depot is only experimenting with that now,” Webb explained. “Another thing that SRS does well is that it’s got a lot of delivery trucks. Home Depot does not have delivery trucks per se — they’ve got flatbed distribution centers and the like. But this certainly raises the game.”

Along with analyzing what’s known about the deal from Home Depot’s press release about it and subsequent analyst call, Webb and I touched on a few different questions that this deal raises, including what it means for SRS’ company branding; and if the deal puts pressure on rival Lowe’s and QXO — the new building materials distribution platform launched in December by billionaire Brad Jacobs.

Perhaps most interestingly, we discussed why this landmark deal was likely the long play for SRS all along since its 2008 founding.

Beyond that, we discussed the overall state of M&A in the building materials and construction supply landscape amid a still challenging business environment hamstrung by a weak U.S. housing build market. Finally, we touched on two major annual reports that Webb Analytics provides — its 2023 LBM Deals Report that covers all the M&A activity of the past year, and its soon-to-be released Construction Supply 150, which, like MDM’s Top Distributors Lists, is a revenue-based ranking of U.S.-based lumber, building material and construction supply dealers.

Listen to the full podcast via the audio player above, and you can view all of our past MDM Podcasts here.

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