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US hardware retailer Home Depot has reached a deal to purchase building products distributor GMS for $5.5bn, besting a rival proposal from the investment vehicle of billionaire investor Brad Jacobs that is backed by investors including Jared Kushner, Sequoia Heritage and the Walton family.
The Atlanta-based company said GMS, which operates a network of more than 300 construction supply hubs in North America, will become part of Home Depot’s SRS Distribution subsidiary, which it acquired for $18.25bn last year in a bid to serve more professional contractors.
The offer values GMS’s stock at $110 a share, giving the business, including debt, an enterprise value of around $5.5bn. Home Depot’s move should help boost its exposure to the commercial market, but also slows Jacobs’ efforts to create a building products empire through his latest venture, QXO.
QXO in mid-June went public with an unsolicited $5bn proposal to acquire GMS, threatening to take it directly to shareholders if the target company did not engage by June 24. Earlier this year, QXO struck an $11bn deal to buy roofing supply distributor Beacon after launching a hostile bid.
Under the terms of the deal, GMS will have to pay Home Depot $147.5mn if the company decides to pursue a deal with another suitor, while Home Depot will have to pay a $230mn termination fee to GMS if the takeover does not get regulatory approval.
QXO declined to comment. However, Jacobs has previously telegraphed his interest in a wide array of possible target companies in the building supply sector, which he has described as highly fragmented, with more than 7,000 companies in North America alone.
Jacobs, who has developed a reputation as a “roll-up” specialist, has previously built companies in the heavy equipment rental sector as well as transport and logistics. He has raised several billion dollars in equity from investors including Affinity Partners, the private equity firm set up by Kushner, Donald Trump’s son-in-law, to fuel an acquisition spree for QXO.
Home Depot’s sales have been sluggish for the past two years as high interest rates keep homeowners from borrowing to undertake rehab projects. GMS sells products such as drywall and steel framing directly to contractors, delivering to commercial job sites.
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The group’s deal for SRS closed last year, in a move aimed at expanding Home Depot beyond its do-it-yourself roots. Dan Tinker, SRS chief executive, said on Monday the GMS deal would allow it to “create a network of more than 1,200 locations and a fleet of more than 8,000 trucks capable of making tens of thousands of job site deliveries per day.”
GMS, founded in 1971 and based in Georgia, operates through a network of local subsidiaries with names such as Cowtown Materials and Trowel Trades Supply. Its shares had declined by 17 per cent in the year up until QXO launched its bid.
SRS competes with large distributors such as the New York-listed Builders FirstSource and Ferguson as well as independent lumberyards and supply houses, Home Depot chief executive Ted Decker told the Financial Times earlier this year. Professional customers make up about half of Home Depot’s business, Decker said.
GMS shares were up 11.7 per cent at $108.80 during Monday afternoon trading in New York. That brings it close to Home Depot’s offer, which valued GMS at a premium of 36 per cent to trading price before QXO launched its public bid of $92.50 a share. Home Depot shares were down 0.4 per cent.