Home Depot, the largest home improvement company on the Fortune 500, is leaning into a contractor customer base, announcing Monday its acquisition of specialty building products distributor GMS for about $4.3 billion.
The company says scooping up GMS will help grow its professional contracting (Pro) business, which was also aided by Home Depot’s 2024 acquisition of specialty trade distributor SRS. That helped solidify Home Depot as a leader in roofing, landscaping, and pool supply retailing, according to the company’s announcement.
While analysts say Home Depot’s acquisition of GMS will help strengthen the company’s position as a leading building products distributor, the home improvement company might have paid too much for it.
Although the “strategic rationale is sound, with added scale, category breadth, and delivery capabilities,” Home Depot paid 11 times GMS’s Ebitda (earnings before interest, taxes, depreciation, and amortization), Raymond James analysts wrote in a note published Monday. This “may be a point of debate among some investors,” they added.
Under the terms of the agreement, Home Depot’s SRS will buy all outstanding shares of GMS common stock for $110 per share, bringing the value to $4.3 billion. The transaction is expected to be completed by the end of this fiscal year.
Home Depot declined Fortune’s request for comment on whether the company overpaid in the GMS acquisition.
Still, Raymond James analysts said they see this acquisition as placing Home Depot as “the clear No. 1 in drywall distribution,” ahead of private-equity-owned FBM. The acquisition also “escalates pressure” on other home improvement companies like Lowe’s and QXO (formerly Beacon Building Products), according to Raymond James analysts, who added the acquisition helps Home Depot expand into drywall, ceilings, and steel framing.
Following the acquisition, Home Depot will offer more fulfillment and service options “than ever before,” according to a company statement, by creating a network of more than 1,200 locations and a fleet of more than 8,000 trucks. That will allow for tens of thousands of jobsite deliveries per day, SRS CEO Dan Tinker said in a statement.
“The Home Depot acquired SRS as a platform for growth, and SRS continues to demonstrate exceptional execution and strong performance,” Ted Decker, chair, president, and CEO of Home Depot, said in a statement. “This success gives us confidence that the addition of GMS to the SRS platform will allow us to create even greater value for our customers.”
Raymond James analysts wrote in their conclusion that if Home Depot can detail and deliver higher than base case growth in earnings per share (EPS) and earnings before interest and taxes (EBIT), they “expect investors will look past the modestly higher premium paid and view the acquisition favorably.”
