Bain Capital, a global private investment firm based in Boston; The Carlyle Group, a global private equity firm based in Washington; and Clayton, Dubilier & Rice Inc. (CD&R), a New York- and London-based private equity investment firm, have jointly purchased the HD Supply wholesale distribution business from The Home Depot.
Each firm will invest equal amounts of equity in the $10.3 billion transaction. The transaction is subject to customary regulatory reviews and is expected to close in the third quarter of 2007.
A source close to CD&R said that firm had looked at Hughes Supply when it was up for sale, before it was purchased by Home Depot and rolled into HD Supply. Interestingly, Charles Banks is an operating partner at CD&R. Banks served as president/CEO of Ferguson Enterprises and also as group chief executive at Wolseley plc before retiring from that company in July 2006. He joined CD&R later that year.
HD Supply is the second largest distributor of construction, industrial and maintenance supplies in North America, with 2006 revenues in excess of $12 billion. It has achieved No. 1 positions in five of 12 industry verticals. The company has nearly 1,000 locations in North America and employs 26,000 associates.
Under former chairman and CEO Robert Nardelli, Home Depot built the wholesale construction-supply business through nearly 40 acquisitions totaling more than $7 billion over the past few years. HD Supply generated about 13 percent of Home Depot’s sales in fiscal 2006 but delivered 80 percent of its sales growth.
Joe DeAngelo, COO and executive vice president at The Home Depot, who had continued to oversee HD Supply while assuming additional responsibilities for the retail business since February, will remain with HD Supply following the acquisition.
Steve Zide, managing director of Bain Capital, said in a statement that DeAngelo could drive better execution, growth and profitability now that it won’t be part of Home Depot, which is first and foremost a retailer.
An industry source close to the investment firms said he was not aware of any plans to change the name from HD Supply or to sell off any pieces of the business at this time.
Industry Reaction: At press time, several key people in the plumbing and heating wholesale industry had responded with their views on the sale.
“I don’t see that this is a major event in our industry,” said Joel S. Becker, CEO of wholesale firm Torrington Supply Co., and current president of the American Supply Association. “The Home Depot acquisition of Apex, Hughes and others really was … transparent to their customers and I suspect that the new buyers will try to do everything they can to make the move transparent to their customers again.”
“In the short run, the purchase won’t have much impact on the industry,” noted Adam Fein, president of Pembroke Consulting. “The plumbing and HVAC contractor industry remains highly fragmented across many specialties and is dominated by small businesses.”
When asked whether the new owners of HD Supply might gut the company to save expenses or sell it off piecemeal, Chris Perry, president/CEO of wholesale firm VAMAC, noted: “A blend of both actions will be probable. They will generate short-term cash necessary to either create a new entity or to sell part or all for a profit.”