RPT-BREAKINGVIEWS-Home Depot’s latest project is $4 bln fixer-upper

By Jonathan Guilford

NEW YORK, June 30 (Reuters Breakingviews) - Home Depot HD.N looks to have won a speedy bidding war. After an initial approach by aggressive dealmaker Brad Jacobs, the retailer managed to seal a $4 billion transaction with distributor GMS GMS.N. It builds on a prior landmark acquisition, and the valuation looks roughly in-line with the market. Nonetheless, it’s not quite move-in ready: without decent synergies, its raised price looks value-destructive.

It is an exciting time for at least some bankers. In industries like technology, mega-deals are bouncing back. In the fragmented world of building-products distribution, new entrant $14 billion QXO QXO.N, where Jacobs serves as CEO, is looking to bulk up to $50 billion in revenue through a blitz of acquisitions. Rival Builders FirstSource BLDR.N struck a long string of deals in 2024. Home Depot, meanwhile, acquired SRS Distribution for over $18 billion including debt last year.

That two bidders would cross paths was therefore perhaps inevitable. QXO helped push GMS into play earlier this month, when it made public a $95.20-per-share offer, threatening to go directly to shareholders. Yet Home Depot on Monday announced that it had reached an agreement to buy GMS for $110 a share, a 36% premium from where the stock stood before Jacobs’ arrival.

If successful, the deal values GMS’s enterprise including debt at $5.5 billion, or about 11 times expected EBITDA over the next twelve months, according to Visible Alpha data. After trading well below a peer group including the likes of Core & Main CNM.N and TopBuild BLD.N, that lifts the seller into roughly the middle of the pack. It’s a decent outcome given that EBITDA is expected to fall for the third year in a row, down 26% from its peak.

For Home Depot, it’s more complicated. The deal price implies a return of only a little over 4% for the buyer before any profitability boosts from cost cuts or boosted sales, Breakingviews calculates. In order to roughly double the return to 8% such synergies would have to reach nearly $250 million.

At over 4% of GMS’s expected 2026 revenue and 20% of sales, general and administrative costs, that’s punchy but not implausible. Home Depot is building a big platform to appeal to contractors and is so large that it can probably squeeze out efficiencies. Break fees offer both buyer and seller some insurance against a renewed rival bid or regulatory opposition, respectively. It’s a fixer-upper, but it’s not a complete wreck.

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CONTEXT NEWS

Home Depot said on June 30 that it had agreed to acquire building products distributor GMS for $4.3 billion, or $110 per share. The price rises to $5.5 billion when including net debt.

Rival bidder QXO said on June 18 that it had submitted an offer of $95.20 per share in cash, adding that it would take its proposal directly to shareholders if GMS did not respond by June 24.