A Precursor of HD Supply?

According to last week’s Home Channel News, as reported by Industrial Distribution magazine, HD Supply will be selling their lumber and building materials division to Pro-Build Holdings. While these businesses were concentrated in Georgia and Florida, where the residential business is not good (we know, an understatement), it can be presumed that Pro-Build saw an opportunity to either fill gaps or could gain some synergies.

From an HD perspective, however, this could be the sign that many industry viewers have been waiting for. People have asked if the new owners plan to operate the company in multiple verticals or perhaps streamline the organization and concentrate in selected industries (and then build them out). With this divestiture could it be that HD Supply will not be committed to the residential market.

Historically the commerical contractor market is more stable, the utility market is more concentrated and HD Supply has significant share, property management is a growth market and HD has high share in the construction tools (White Cap) market. Could the company be positioning itself to grow in these markets, perhaps through acquisitions?

Conversely, it would not surprise some to see HD Supply slowly sell off its contruction division (building materials, plumbing, electrical, construction supply, interiors) or integrate some elements with other divisions. This division represents the slowest growth opportunity with its residential focus.

The question then becomes, sell to whom, especially for the electrical group? Given that the company’s footprint is primarily in the Southeast (plus Arizona), perhaps Crescent Electric, Summit Electric, Reynolds Electric, another super regional or a private equity firm might be interested. If the division has significant residential business (unknown), could be a good way to enter into these markets if the price was right!