Atlanta-basedHD Supply, No. 2 onSupply House Times’ 2011 Premier 150 ranking, agreed to sell its plumbing and HVAC business Aug. 25 toHajoca Corp., No. 10 on the 2011 ranking. Transaction details were not disclosed; the sale is expected to be completed this month.
“After carefully evaluating the opportunities, we determined that a sale of our Plumbing/HVAC business to Hajoca Corp. was in the best interests of our company as a whole and would be a good strategic fit for both businesses,” HD Supply toldModern Distribution Managementmagazine a day after the announcement.
The Evolution of HD Supply
HD Supply was formed in early 2006 by The Home Depot’s purchase of Orlando, Fla.-based Hughes Supply for $3.47 billion (including debt). The division continued to acquire companies, with sales up 159 percent in the third quarter of 2006. It contributed $2.1 billion of Home Depot’s $2.3 billion third-quarter 2006 sales growth.Yet in February 2007, The Home Depot announced it was considering selling HD Supply to focus on its retail business, which was lagging. After months of speculation - in the industry and on Wall Street - Home Depot finally came to an agreement in August 2007 with three private equity firms (Bain Capital, a global private investment firm based in Boston; The Carlyle Group, a global private equity firm based in Washington; and Clayton, Dubilier & Rice, a New York and London-based private equity investment firm) to buy the division for $8.5 billion. Home Depot would retain 12.5 percent equity stake in the company.
At that time, HD Supply was the second largest distributor of construction, industrial and maintenance supplies in North America, with 2006 revenues in excess of $12 billion.
In November 2007, the wholesale distributor sold its lumber and building materials business to Pro-Build Holdings. The following month, HD Supply announced its intentions to sell its HVAC business to Coconut Grove, Fla.-based Watsco.Supply House Timesquoted an investor who said selling the lumber business “was a natural” because that segment of the industry wasn’t profitable anymore; HVAC was similar in that it was seasonal and HD didn’t have a national HVAC presence.
However, the deal fell through in January 2008 because the two companies could not come to an agreement. HD Supply was also closing locations due to the slump in the residential housing market, the company said. Those closings included eight branches of the former Apex Supply Co. - the company that essentially started HD Supply with it’s acquisition by Home Depot in 2000.
The waterworks division of HD Supply acquired D&M Fabrication in March 2008, and in April the company launched two proprietary brands; one for kitchen and bath consumers, the other for heavy-duty products such as tools and hardware for the trades.
In November 2008, Carlyle Group, one of the three HD Supply owners, told its investors that its share in HD Supply was worth about 85 cents on the dollar.
February 2009 saw Home Depot paying HD Supply $22 million in a post-closing purchase price adjustment, part of their agreement.
“In connection with its minority stake in HD Supply, Home Depot recently announced that it would record a pre-tax charge of $163 million for a write-down of its investment in HD Supply,”Supply House Timesreported. “The write-down reflects a lower valuation for its investment and is consistent with the decrease in the overall market since 2007. According to HD Supply, this accounting adjustment does not impact HD Supply's operations, funding or access to capital.”
The company reported a $514 million for fiscal year 2009 and a revenue decrease of 24 percent. It had already closed three branches and cut 65 employees in the first nine months of the year, but intended to consolidate 25 branches and cut 350 more employees to trim its costs. By Aug. 1, 2010, the company had closed or consolidated 25 branches and cut 425 employees.
“Financial performance declines in fiscal year 2009 were primarily a result of continued decline in the residential, commercial, and municipal construction markets, decline in the oil and gas markets, and unfavorable fluctuations in prices of commodities, such as steel, PVC, copper, and nickel,” reportedModern Distribution Managementmagazine. “Volume declines were partially offset by positive impacts from efforts to gain new market share.”
HD Supply hired a new CFO in early 2010, but losses continued that year - $619 million for fiscal 2010, yet sales eked up about 1 percent.
“Our liquidity remains very strong, which allows us to meet our commitments and continuously invest in profitable growth,” stated CEOJoe DeAngelo.
HD Supply’s financial outlook is starting to turn around in 2011. Acquisitions began again in early in the year as the company’s Waterworks Division bought Watervliet, N.Y.-based Rexford-Albany Municipal Supply Co. (RAMSCO).
And for the first six months of fiscal year 2011, the company reported an increase in net sales of 7.5 percent from the same period in 2010. Loss from continuing operations before income taxes was $231 million in the six months ended July 31, 2011, an improvement of $76 million as compared to the same period of fiscal 2010.
