Home Depot Bids for GMS, Stock Surges 33%

Home Depot, a prominent home improvement retailer, has reportedly made a bid to acquire GMS, a major distributor of building products. This development comes after QXO previously offered to acquire GMS for $95.20 per share in cash, valuing the company at approximately $5 billion, including debt. Home Depot has not yet confirmed its acquisition proposal, while QXO has stated that it will pursue a hostile takeover if GMS's management rejects its offer, with a deadline set for June 24.

Analysts have weighed in on the potential acquisition, with Evercore ISI analyst Greg Melich noting that acquiring GMS aligns with Home Depot's strategy to expand its complex professional customer business. This move could unlock a serviceable market with a total size of $1 trillion. However, Melich cautioned that if the bidding war intensifies and the focus shifts to integrating the fragmented construction and tools market, the market may become more concerned with the scale and price of future acquisitions.

Earlier this year, Home Depot acquired SRS for $18 billion, aiming to expand its professional ecosystem and increase its market share, particularly in complex projects. The acquisition of GMS would further bolster Home Depot's position in the professional market, providing it with a stronger foothold in the industry.

Following the acquisition news, GMS's stock price surged by 33% last week. Analyst Badsha Chowdhury commented that a successful acquisition would create a "giant" in the housing and construction industry. Despite relatively low cash flow, GMS's balance sheet is robust enough to withstand current geopolitical uncertainties.