Almost 10 months after initially announcing its intention to split into two equal-sized companies, HD Supply and private investment firm Clayton, Dubilier & Rice co-announced Tuesday that CDR is buying HD Supply’s Construction & Industrial – White Cap business for $2.9 billion.
Upon completing the acquisition, CD&R will merge White Cap with Construction Supply Group, a distributor of specialty concrete and masonry accessories in a move that will create a construction and safety supplies distributor with more than $4 billion in annual revenue.
White Cap serves as a distributor of concrete accessories and chemicals, tools and equipment, building materials and fasteners, erosion, waterproofing and safety products to professional contractors. According to CD&R, White Cap operates 270 branches with about 5,500 employees and offers more than 400,000 SKUs to 200,000 customers. Meanwhile, CSG currently has 130 branches and about 2,000 employees, offering more than 60,000 SKUs to 65,000 customers.
When both the White Cap acquisition and CSG merger transactions close, CD&R will own 65 percent of the combined company, while The Sterling Group — current shareholders of CSG — will own 35 percent.
"After a detailed evaluation, we determined that a sale of our White Cap business unit to Clayton, Dubilier & Rice is in the best interests of our HD Supply stockholders,” said Joe DeAngelo, HD Supply Chairman, president & CEO. "This transaction will enable the HD Supply leadership team to intensify our focus on Facilities Maintenance, while also returning capital to our HD Supply shareholders."
CDR previously bought HD Supply’s Waterworks business in 2017 for $2.5 billion and turned it into distributor Core & Main.
HD Supply — No. 2 on Industrial Distribution’s 2019 Big 50 List — said it expects to use the proceeds from the White Cap sale to return capital to shareholders, fund M&A activity and repay debt. HD will share more details in its 2020 second quarter earnings call in early September.
“We developed strong confidence in the White Cap management team during our prior ownership of HD Supply, as they successfully managed through the global financial crisis," said Nate Sleeper, CD&R CEO. "Over the past several years, the CSG team has built a strong new leader in the industry. We are excited to work alongside both teams to capitalize on the many promising value creation opportunities we believe this strategic combination offers."
Upon completion of the White Cap transaction, which is expected in October and not conditioned on the closing of the CSG acquisition, White Cap CEO John Stegeman and president Alan Sollenberger are expected to continue to lead the Construction and Industrial business, which will include the White Cap, Home Improvement Solutions and Brafasco businesses.
"This transformational combination simultaneously increases our product and service offering, capabilities, and diversification and establishes our business as a focused, independent company," Stegeman said. "We are enthusiastic about the opportunity to join forces with the many talented associates and leaders at CSG to enhance our collective ability to serve our customers. Following this transaction, we will be very well positioned to pursue both organic and inorganic growth opportunities aligned with our strategic priorities."
HD Supply initially announced its plan to separate White Cap and its Facilities Maintenance business on Sept. 24, expecting it to complete by the middle of the company’s fiscal 2020. On March 30, HD said it was deferring its planned separation due to market conditions surrounding the COVID-19 pandemic, but said it was committed to the separation.
HD Supply had total 2019 sales of $6.1 billion, up 1.6 percent from 2018. White Cap and Facilities Maintenance each had 2019 sales of approximately $3 billion.
CSG has been rapidly growing over the past 3 years through acquisitions on behalf of The Sterling Group, buying 11 fellow construction supply distributors since December 2018.