The Home Depot Doubles Down on Pro Customer, Acquires SRS Distribution

Home-improvement retailer The Home Depot acquired SRS Distribution for approximately $18.25 billion. McKinney, Texas-based SRS Distribution is a specialty trade distribution company operating across several verticals, including Heritage Landscape Supply Group and Heritage Pool Supply Group, serving roofers, landscapers, and pool contractors.

Growing the share of wallet with the professional customer is one of The Home Depot’s three growth priorities, and the retailer said the acquisition will help fuel its next growth chapter while helping the company better sell the whole project and capture customers—specialty trade contractors—it has not traditionally served. For the past several years, the retailer has been building out its capabilities to better serve the pro customer, which represents about half of the sales by The Home Depot.

“The ecosystem that we are building is focused on the general contractor who shops cross-category and benefits from consolidating product purchases,” Ted Decker, chair, president, and CEO of The Home Depot, said during an investors call announcing the deal. “Going forward, we will be able to leverage SRS’ deep product catalog and distribution capabilities to help us better serve the complex project purchase occasion. In addition, SRS will continue to serve their specialty trade pro customers who may be working on their own projects or may be a subcontractor working on a complex project with one of our targeted general contractors.”

Todd Tomalak, principal of building products for Zonda, said the acquisition is a testament to how seriously The Home Depot is taking the pro contractor segment.

“Our research shows that the pro contractor will drive more influence on product (and margins) than ever before,” Tomalak said. “We think there is an additional $8 billion of revenue to be gained simply because of the churn occurring on where pro contractors shop, and this move captures a piece of that immediately. Given the extremely tight labor backdrop for the remainder of this decade, investing in the pro is table stakes. The Home Depot just signaled they mean business.”

SRS Distribution operates a network of more than 760 branches across 47 states in addition to a 4,000 truck fleet with delivery capabilities. The Home Depot said the acquisition will enable it to extend its offering to residential specialty trade pros while better serving renovators and remodelers.

“SRS is an industry leader with a proven track record of profitable growth across verticals,” Decker said in a news release. “SRS’ ability to build leadership positions in each of its trade verticals while generating significant revenue growth is a testament to its strong vision, leadership, culture, and execution. SRS has built a robust and successful platform that will accelerate our growth with the residential professional customer while presenting future opportunities with the specialty trade pro.”

The closing of the acquisition is subject to customary closing conditions and is expected to be completed by the end of fiscal 2024. The transaction is expected to be funded through cash on hand and debt, according to The Home Depot. In addition to the signal of intent by The Home Depot, Tomalak said the deal is significant because of the value of the transaction. The $18.25 billion acquisition is the largest deal ever done by The Home Depot.

“There is a large amount of private equity dry powder on the sidelines, and we expect a wave of future interest in home improvement,” Tomalak said.

The Home Depot said the acquisition will accelerate its growth with the residential professional customer. SRS Distribution complements The Home Depot’s capabilities and will enable the company to better serve complex project purchase occasions with remodelers while also establishing The Home Depot as a “leading specialty trade distributor” across multiple verticals. Decker said SRS’ branch network coupled with The Home Depot’s stores and distribution centers will provide the residential pro customer “with more fulfillment and service options than ever before.”

The Home Depot believes post-acquisition its total addressable market is approximately $1 trillion, an increase of approximately $50 billion.

“Our team is thrilled to join The Home Depot,” Dan Tinker, SRS president and CEO, said in a news release. “We are looking forward to combining our differentiated assets and capabilities, including our extensive branch network, experienced sales team, robust trade credit offering, and order management system, geared at serving the complex project purchase occasion, with The Home Depot’s competitive advantages. We believe this will enable us to better serve pros and continue growing in our large and highly fragmented markets.”

Tinker and his senior leadership team will continue to lead SRS, and Tinker will work closely with The Home Depot to deliver the best value and proposition for all pro customers, according to the retailer. Under the terms of the agreement, SRS Distribution will operate as an independent business unit within The Home Depot, focused on accelerating growth in the pro market.

“It’s striking that The Home Depot is leaving SRS as separately branded locations,” Tomalak said. “This we view as the ‘right move,’ and a signal that The Home Depot is very self-aware of the limitations its DIY brand may have among premium/complex professionals.”