An Atlanta Journal Constitution article entitled “HD Supply CEO surprised by Home Depot move” provided some interesting observations regarding HD Supply:
- HD Supply’s sales have dropped $5 billion in 3 years, down to $7 billion. While it’s presumed much was in their residential areas (plumbing, building materials, electrical), a drop of $5 billion for a highly leveraged company (since they are owned by private equity) is significant.
- While Joe DeAngelo, HD Supply’s CEO was surprised that Home Depot wrote the value of the business down to $0, and Home Depot says this is due to accounting rules, it is also revealing that the other private equity firms only value the business at 20 to 40 cents on the dollar (which begs the question, why is one, or more, of the firms more optimistic?)
- The article also mentions that HD is talking to banks about extending some credit facilities, some of which Home Depot guarantees. If you value your own investment in something at $0, would you guarantee a sizable loan for it? (perhaps only if you really bought into a plan to drive growth and profitability within the timeframe of the credit facility).
But realistically, is the value of the business really “zero” or is this an example of accounting rules that make no sense.
HD is perceived to have some good businesses that could, perhaps are, successful. Areas such as waterworks (where government money is being spent), utilities (where WESCO, Sonepar/Irby and a few independents are strong competitors as well as the smartgrid could represent opportunities), and facilities maintenance (as an alternative to Grainger and MSC.) ” The remainder appear to be in “challenging” markets.
How do you see HD in your market? As a supplier, are they a significant regional player for you? Will HD Supply be an important player in the electrical market in the long term (and if so, in what segments of the market?) Are elements of HD Supply ripe to participate in industry consolidation (acquirer?, seller?)
5 Comments
20 to 40 cents on what dollar?
Does HD Supply have a long term mission anymore?
Does any company in distribution have a long term mission anymore that makes their companies more valuable than pre 2009?
Company Valuation depends on a vision of value, which is gross profits less costs, the latter driven by superior productivity. If an industry or any company within it has not vision of how to improve that profitability vision, then valuations will necessarily slip preceiptirously with decrease in volume.
All of this speaks to a severe lack of vision on both upside sales potential and synergy on the productivity side of things as well.
First, Home Depot did not “build” HD Supply. It was Hughes Supply before Home Depot bought it and changed both the business model and name. Hughes Supply was a highly successful and profitable company, which is why Home Depot bought it in the first place.
The problem Home Depot encountered was that they changed HD Supply the same way they changed the Home Depot Brand and stores, by making both companies exactly like Wal-Mart and selling cheap Asian imports for high profits. They expected the contractors to use cheap products and be happy like the consumers, and they went elsewhere for their supplies. This is a loosing business model (unless you are Dollar General) and the value probably really is $0 right now. The Home Depot stores will be next if they keep riding the Orient Express.
It is unfortunate for Home Depot bought and sold a highly successful company (Hughes Supply) and drove it right into the ground.
Where’s Don Meredith when you need him? Turn out the lights, the party’s over…
Why should Rexel get all the attention there are plenty of poorly run players in the industry and HD Supply stands out among them. Dumb idea in the first place run by an egomaniac to it’s logical outcome – failure.
Anyone who is still on that sinking ship better be looking for a place to grab hold of. The leverage is going to suck that thing down sooo fast they will be gone within a year.
Just another in the ever-lengthening line of “distributors” that either forgot or never learned a basic rule: this is still a relationship business. Customers have a choice and will usually buy where they a feel an element of comfort – it’s not all about price. Also, from a manufacturer’s perspective, HD Supply senior management is the most disconnected of all major distributors.
One of the bigest hurdels that has to be overcome is the profitibility of the branches within HD Supply, and how the Vice president of Operations David Wilson is handeling the direction of these branches. If you have a value of $0 and you are still trying to pour money into a failing area,you are bound to fail. Subsuquently in an economy that has the largest unenployment in decades, HD Supply should be looking to improve their management in all areas From Branch management to COO to get the business back on track. It’s conceivable that HD Supply will have a 5 year plan for their laons, and will modify these pland as the economy improves.
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