Home Depot Sells HD Supply To Trio Of Private-Equity Firms

June 28, 2007
After months of rumors about who might buy HD Supply, the electrical industry is now turning its speculation to the operational strategy of the new owners.

After months of rumors about who might buy HD Supply, the electrical industry is now turning its speculation to the operational strategy of the new owners.

Home Depot Inc., Atlanta, agreed to sell its distribution business, HD Supply, to a group of private-equity firms. Clayton Dubilier & Rice Inc. (CDR), Bain Capital Partners and Carlyle Group will pay $10.3 billion for the business. The deal is expected to close by the end of October, with all three private-equity firms investing equal amounts of equity in the transaction.

“This is the right decision for our business, at the right time,” said Joe DeAngelo, CEO of HD Supply. “The private equity firms’ decision validates what we at HD Supply already know, that our industry holds tremendous opportunity and that the HD Supply businesses have what it takes to lead it: knowledgeable people, long-cultivated relationships and dedication to providing superior customer service.

“This sale positions our businesses for continued growth and success under new ownership. Bain Capital Partners, The Carlyle Group and Clayton, Dubilier & Rice are three of the most well-known and respected private-equity firms in the world, and together with our HD Supply leadership team, we will build the exciting next chapter in our history.”

Details were not available at press time about what the next chapter in HD Supply’s story might entail. DeAngelo and other key managers will be staying with HD Supply, according to an HD Supply spokesperson. In addition, no immediate plans exist to change HD Supply’s name.

David Gordon, president, Channel Marketing Group, Raleigh, N.C., believes the new owners will look for acquisitions of quality companies in diversified non-residential markets and possibly in the utility market. Gordon said it would not surprise him to see a name change and possibly a reorganization into market- or product-focused groups that could then be built into stand-alone or “pure-play” companies. This, he said, would enable the new owners to provide focused resources, direction and growth for these segments, which could eventually have greater potential value for them if they marketed these companies to other potential owners or to public markets as “pure-play” distributors.

This strategy would differ from one in which the new owners would keep all of the businesses together and operated HD Supply as a single entity with interests in a diverse array of end-user markets. CDR would not comment at press time on the details of HD Supply’s future operating strategy.

Jeff Cleveland of C&S Sales/Action Inc., a Miami-based manufacturers’ rep, said he noticed a big change in the way Hughes Supply operated after it became part of HD Supply. He said at first there was a management shake-up in which Hughes Supply lost two key electrical industry executives: Skip Hughes and Drew Ott.

“There was pretty much a complete wholesale management change from the top right down through a lot of branch managers,” he said. “So you had a whole new crew in there. A lot of the people in the trenches stayed, outside salespeople and inside salespeople. They added a lot of people. A lot of the key folks stayed.” Several new managers with experience in the electronics distribution market took their place.

HD Supply has made several interesting moves in the Orlando area, said Cleveland. In December 2006, HD Supply opened a 300,000 square-foot facility in Orlando that houses plumbing and electrical products. In fact, they had opened up a subsidiary utilizing that facility called Florida Fuse, a specialty fuse company .

“That was one of the unique things that the HD Supply guys and gals were beginning to get involved in — thinking outside the box in terms of filling niches, creating other opportunities instead of just going head-to-head over electrical products,” he said.

The sale of HD Supply comes about a year after Home Depot bought Hughes Supply for $3.2 billion. In February, Home Depot began exploring alternatives for HD Supply in a move to increase its focus on its core retail business. The HD Supply wholesale division has more than 26,000 employees, with revenue of $12.1 billion in 2006.

Home Depot built up its wholesale unit during the past few years. Its biggest acquisition was Hughes Supply in early 2006.