Home Depot (HD, Financial), through its subsidiary SRS Distribution, announced plans to acquire GMS Inc. (GMS, Financial) for approximately $4.3 billion. SRS will initiate a tender offer to purchase all outstanding shares of GMS at $110 per share in cash. This acquisition price represents a 14% premium over GMS's last closing price, causing GMS shares to surge.
Previously, QXO Inc. (QXO, Financial) had offered $95.20 per share for GMS, valuing it at $5 billion. There was also speculation about an earlier bid from Home Depot.
- GMS is a specialty distributor of building products such as wallboard, ceilings, and steel framing, operating over 320 distribution centers in the U.S. and Canada. Its business complements SRS Distribution, which focuses on roofing and siding products for contractors.
- The acquisition will enhance SRS’s offerings by adding GMS’s interior-focused products, creating a comprehensive platform for professional customers. This move strengthens Home Depot's professional business, a strategic priority since acquiring SRS for $18.25 billion in 2024. It positions HD in the $950 billion professional contractor market, diversifying beyond retail and capturing higher-margin revenue from professional clients.
- GMS reported FY25 net sales of $5.5 billion with a slight year-over-year increase, though organic sales declined by 5.4%. The acquisition price, with a P/E ratio of 34.3x, is above historical averages, but the 9.7x EBITDA multiple (based on QXO's offer) is reasonable for strategic acquisitions in this sector. The premium paid reflects competitive bidding pressure but is justified by GMS's stable cash flows and market position.
- For Home Depot, the immediate financial impact of acquiring GMS may be modest due to HD's massive $153 billion in trailing twelve-month revenue. GMS’s $5.5 billion sales represent about 3.6% of HD’s revenue. The deal's earnings impact is uncertain, as GMS's lower-margin profile could affect margins.
Overall, this acquisition aligns with Home Depot's strategy of expanding its professional contractor ecosystem, following previous acquisitions like HD Supply and SRS. It enhances HD's professional contractor business by adding a leading distributor of interior building products. While short-term earnings accretion may be limited, the deal boosts HD’s scale in the professional segment, potentially increasing profitability as integration progresses.
