Home Depot Inc., one of the world's largest home-improvement retailers, made its biggest acquisition recently, agreeing to purchase Hughes Supply Inc., a leading distributor of HVAC, construction, repair, and maintenance products. According to Home Depot, the total cost is $3.47 billion, including the payment of $46.50 per outstanding share and the assumption of $285 million in net debt.

"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 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 expanded 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."

According to Joe DeAngelo, executive vice president, The Home Depot, the acquisition will accelerate The Home Depot strategy of repeating in the professional space the same type of market transformation The Home Depot executed in the do-it-yourself retail space.

"Together, we can better serve local, national, and governmental customers, offer the broadest range of products and services, and drive synergies by leveraging our combined purchasing power and customer service," said DeAngelo.

"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."


Founded in 1928, Hughes Supply is one of the nation's largest diversified wholesale distributors, with over 500 locations in 40 states. Shareholders of Hughes Supply, which sells everything from cement to heating and air conditioning systems, will receive $46.50 a share. The company had $4.42 billion in sales in the last fiscal year.

The purchase will double the size of Home Depot's supply division to $12 billion in revenue, allowing the company to continue its drive to win professional customers. The move by Home Depot pushes the big-box retailer further into traditional industrial wholesale markets.

Before the Hughes acquisition, The Home Depot Supply's largest buy was National Waterworks, a $1.4 billion distributor of products used to build, repair, and maintain water and sewer systems. It also recently bought White Cap Construction Supply, a $500 million distributor of specialty hardware, tools, and materials to contractors. Williams Bros. Lumber, with $400 million in annual revenues, was also snatched up by The Home Depot.

According to financial reports, Home Depot's supply business has grown to comprise about 5 percent of Home Depot's total revenues, or roughly $3.6 billion of its $73 billion in 2004 revenues. Most recently, about one-fourth - nearly a full percentage point - of the company's 3.6 percent same-store sales growth in the third quarter came from the supply business.

"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 Hughes Supply's 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."


Many industry consultants and strategists approve of the acquisition. "It just tells us that Home Depot is really highly motivated to get into the industrial distribution market," said David Manthey, senior distribution analyst who follows Hughes for Robert W. Baird & Co. Inc., Milwaukee. "Hughes was the only cornerstone property that was out there."

Michael Marks, principal partner in Indian River Consulting Group, is excited about the acquisition because of the attention it brings to wholesale distribution companies.

"[The Home Depot] recognizes the value of the wholesaler," he told Modern Distribution Management. "It's going to attract more investment into the channel."

Marks said the news is especially good for distributors who want to sell or consolidate.

Consultant Bruce Merrifield said he was watching closely to see how The Home Depot would manage Hughes' diversified offerings.

"It looks like a very expensive, ambitious effort for Home Depot at the crust of the housing bubble," Merrifield told Modern Distribution Channel. "Housing starts are expected to slow in the next year and return to the healthier levels seen in 2004."

Manthey added that the wholesale distribution industry should be watching closely for The Home Depot's next move.

"Most people are trying to figure out who is next," he said. He said that Home Depot already has a strong position in the construction market, so it may try to dig deeper into the industrial market.

The acquisition was a topic of discussion on "The Wall," the forum area on www.heatinghelp.com.

"I do purchase quite a bit from the local Hughes Supply. I'm even a stockholder in Hughes - and Home Depot, unfortunately. I'm not in favor of the purchase because it does cheapen our trade," posted Jeffrey Lawrence of Jeffrey Lawrence and Co., Woodstock, Ga. "The people I talk to at Hughes Supply say that nothing will change in the way the business is run. We'll see."

He added, "I don't feel that Home Depot has been trying to put me out of business, because in my state you have to have a license to purchase HVAC equipment. There are more places on the Internet that sell equipment that may get someone killed. Now, water heaters and electrical panels are sold to anyone here, and I've found that the exact florescent light fixtures are cheaper at Home Depot than at Hughes."

The acquisition is expected to close as soon as possible, pending appropriate shareholder and regulatory approvals.

Publication date: 01/23/2006