Home Depot To Buy Hughes Supply For About $3.2 Billion

Jan. 10, 2006
In its biggest acquisition ever for its Home Depot Supply Division, The Home Depot, the nation’s No. 1 home retailer, agreed to acquire Hughes Supply Inc. for about $3.2 billion.

In its biggest acquisition ever for its Home Supply Division, The Home Depot, the nation’s No. 1 home retailer, agreed to acquire Hughes Supply Inc. for about $3.2 billion.

Speculation that Home Depot would buy Hughes Supply began to surface when Hughes Supply announced in the late fall that it was looking at strategic alternatives to maximize shareholder value. Hughes Supply had been rumored to be a Home Depot takeover target for years.

Hughes Supply will be part of The Home Depot Supply, a division that has built a position in a range of markets serving business-to-business customers, such as homebuilders, professional contractors, municipalities and maintenance professionals. The purchase of Hughes Supply more than doubles the size of The Home Depot Supply, with projected 2006 combined sales approaching $12 billion, the two companies said. Together, the two companies will serve a $410 billion market, supplying products for infrastructure, construction, maintenance, repair and remodel applications.

"By acquiring Hughes Supply, a company with a long and established reputation for excellence and service, we continue to execute our growth strategy laid out five years ago to enhance our core retail business, extend our business into adjacent areas and expand into new markets," said Bob Nardelli, chairman, president and CEO of The Home Depot. "As part of our expand strategy, The Home Depot and Hughes Supply are an ideal strategic and operational fit for each other, and we look forward to welcoming the Hughes Supply team into The Home Depot family."

Founded in 1928, Hughes Supply is one of the nation's largest diversified distributors of construction, repair and maintenance-related products, with more than 500 locations in 40 states. Hughes Supply's leading position in many of the professional markets will add new platforms to The Home Depot Supply portfolio, while also providing additional scale to the division's positions in water works, professional construction supply and multi-family maintenance, Home Depot said.

Founded in 1978, The Home Depot had fiscal 2004 sales of $73.1 billion. The company employs approximately 325,000 associates and has 2,012 stores in all 50 states, the District of Columbia, Puerto Rico, 10 Canadian provinces and Mexico. The company has announced plans for retail expansion into China.

Hughes made more than $123 million last year on sales of $4.42 billion. The company’s electrical division ranked eighth on Electrical Wholesaling magazine’s Top 200 Electrical Distributors listing in 2005. The electrical business accounted for about 10 percent of Hughes’ 2005 overall sales.

"Hughes Supply, our largest acquisition thus far, will accelerate the execution of The Home Depot Supply strategy of repeating in the professional space the same type of market transformation The Home Depot pioneered and executed in the do-it-yourself retail space," said Joe DeAngelo, executive vice president, The Home Depot Supply. "Together, we can better serve local, national and government customers, offer the broadest range of products and services, and drive synergies by leveraging our combined purchasing power and customer service. We are looking forward to working closely with Tom Morgan, president and CEO of Hughes Supply, and the company's leadership team to establish an integrated professional business of motivated associates that focus on service, growth and shareholder value."

"Home Depot Supply is well-positioned in the marketplace and possesses a wealth of resources to thrive in an industry where there are tremendous opportunities for growth," said Morgan. "This combination is positive for all of our constituents: creating significant shareholder value, increasing the opportunities available to our employees, continuing our commitment to superior service to customers and building on the foundation of strong vendor relationships. We have accomplished a great deal since our company's founding in 1928 due to the dedication and hard work of our people. Together with Home Depot Supply, we are positioned to achieve even more. We have a bright future ahead." The Home Depot said it will fund the acquisition with a combination of cash on hand and access to debt capital markets through the company's $4 billion shelf registration, and that the deal will be accretive to earnings per share within its first year. The acquisition is expected to close as soon as possible pending appropriate shareholder and regulatory approvals.

The Home Depot Supply is the business-to-business division of The Home Depot and is a key component of the company's long-term growth strategy to expand its reach into new markets. Over the past few years, it has built a leadership position in a range of markets serving business-to-business customers, such as maintenance and repair professionals, homebuilders, professional contractors, municipalities and commercial builders.

In the past few years, Hughes Supply has been on an acquisition binge of its own. In 2005, Hughes Supply purchased TVESCO Inc., Memphis, Tenn., a well-known utility specialist that ranked as the 38th largest distributor of electrical supplies on EW’s Top 200; Ram Pipe and Supply Inc., a distributor of plumbing, water and sewer products in Yuma, Ariz.; and National Construction Products Inc., an Atlanta-based distributor of construction materials. These deals followed the company’s 2004 acquisitions: Century Maintenance Supply Inc., Stafford, Texas, a MRO specialist; Standard Wholesale Supply Co., Las Vegas, a distributor of waterworks, plumbing and electrical products; Todd Pipe and Supply, Hawthorne, Calif., a Southern California plumbing distributor; and two utility specialists, Southwest Power, Sante Fe Springs, Calif., and Western States Electric, Portland, Ore. Industry observers believe the Century Maintenance Supply acquisition would fit nicely with Home Depot’s Maintenance Warehouse business, now under the Home Depot Supply banner.