BY ROBERT P. MADER
OF CONTRACTOR'S STAFF
ATLANTA — The mid-January announcement that The Home Depot would buy Orlando, Fla.-based plumbing wholesaler Hughes Supply did not surprise Hughes' biggest competitor, said John A. Stegeman, president and CEO of wholesale giant Ferguson Enterprises in Newport News, Va. Home Depot had solidified its market share in the retail side of the business and the only way to generate growth for its shareholders was on the professional side of the industry, Stegeman said.
"We knew that Hughes was preparing to sell the company, and we figured that with the size and scale there were not that many people capable of buying a company that size," Stegeman told CONTRACTOR. "It either had to go to a big wholesaler like Ferguson or Home Depot or to a venture capitalist."
The Home Depot said it would buy Hughes for $3.47 billion. Home Depot said it would pay $46.50 per outstanding share and assume $285 million in debt.
Hughes Supply will be part of The Home Depot Supply, a division that serves business-to-business customers in a range of markets, such as contractors, residential builders, municipalities and maintenance professionals. The addition of Hughes Supply more than doubles Home Depot Supply with projected 2006 combined sales approaching $12 billion.
"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 Robert Nardelli, chairman, president and CEO of The Home Depot.
Founded in 1928, Hughes Supply has more than 500 locations in 40 states. Hughes will add scale to Home Depot Supply Division's positions in waterworks, professional construction supply and multifamily maintenance, Home Depot said. The combination would deliver purchasing synergies; enhance overall operating effectiveness through scale, simplification and knowledge transfer; and accelerate growth, the company said.
"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 Home Depot Supply Executive Vice President Joe DeAngelo.
Home Depot first got into the wholesale distribution business in a serious way when it purchased Atlanta-based Apex Supply in January 2000. Attempts to cater to professional contractors through other strategies had not borne fruit and Home Depot hoped to learn how to reach the professional market.
CONTRACTOR Publisher and Editorial Director Bob Miodonski editorialized at the time: "Home Depot hopes that Apex Supply will show it how to penetrate the plumbing-heating-coolingpiping market even further."
Ferguson's Stegeman said he doesn't expect Home Depot to make any changes to Hughes for a year, although he's interested in seeing if Home Depot changes any of its vendor requirements. He noted that Home Depot hadn't made changes to its acquisitions from last year, such as PVF wholesaler National Waterworks.
National Waterworks Holdings, Waco, Texas, is a $1.5 billion distributor of products used to build, repair and maintain water and wastewater transmission systems (August 2005, pg. 7). The company distributes pipe, valves, fittings, meters, fire hydrants, and service and repair products.
Stegeman noted that Hughes is stronger in the MRO and waterworks business than on the plumbing side. He said that he expects Home Depot to make Hughes and all its acquisitions perform better across all their lines of business. After about a year, he said that he anticipate Home Depot will start to make changes to take advantage of economies of scale.
Stegeman said that the acquisition is an opportunity for small wholesalers to prosper by staying the course, staying close to their customers and providing impeccable service to contractors.