PE Hub – For delivering the fourth-largest US private equity exit in history amid a challenging environment for M&A and for sharing the proceeds with the target’s employees, Leonard Green & Partners wins PE Hub’s overall Deal of the Year Award for 2024, as well as our Large-Cap North America Award.
The Los Angeles-based PE firm sold SRS Distribution, a distributor of roofing materials and building products based in McKinney, Texas, to the Home Depot for an enterprise value of $18.25 billion in an all-cash transaction. The deal was signed in March 2024 and closed swiftly in June.
Over LGP’s six-year holding period, SRS scaled to become the number two player in each of the roofing, pool, and landscape distribution markets, and EBITDA grew by approximately 5x.
Need to upgrade
The expected exit route for SRS had been an initial public offering, but the all-cash offer from the Home Depot proved too good to pass up.
“SRS is a world-class company that would be attractive to any number of buyers or the public markets in any environment,” LGP managing partner John Danhakl told PE Hub. “We believe that SRS will continue to be a winner under the Home Depot.”
Danhakl said he was “so confident in the combination that I personally bought stock in the Home Depot the day the deal closed.”
More growth for SRS is expected with its new owner.
“Contrary to popular opinion, the roofing industry is not primarily dependent on new real estate development for growth,” LGP senior partner Jonathan Seiffer explained. “The tailwinds driving growth in the industry come from the need to upgrade or replace aging infrastructure and the adoption of more energy-efficient solutions in buildings. We expect these trends to continue, especially considering the expected implementation of stricter building codes and regulations aimed at improving resiliency and building safety. We strongly believe this sector is poised for continued growth.”
Well positioned
LGP began tracking SRS in 2012, five years before then-owner Berkshire Partners launched a sale process led by Barclays in 2017. LGP concluded that SRS was poised to continue taking share in the large, fragmented industry of roofing distribution, both organically and inorganically.
LGP attributed it becoming the buyer of choice to its significant interest in the asset, experience investing in distribution assets and cultural alignment with management (which had significant ownership in SRS at the time). And LGP already had relationships with Barclays and Berkshire Partners, which retained a meaningful stake.
While LGP owned SRS, the PE firm played a significant role in developing and executing the company’s strategic plan, which included: investing in technology and other infrastructure to streamline operations and better support customers; adding to the company’s leadership team; optimizing the company’s workforce and expenses to drive operating leverage; and acquiring companies, building new locations and expanding into adjacent markets, such as pool and landscape, which SRS had little presence in and which LGP had prior experience.
Adding on
With LGP at the helm, SRS made more than 75 acquisitions in the roofing, pool, and landscape distribution markets. On average, acquired companies’ revenue and EBITDA increased by about 1.6x and 3.0x, respectively, by year five as part of the SRS platform.
In 2021, SRS purchased AquaCentral, a large distributor of pool equipment and supplies in the US, marking the largest acquisition in SRS’s history. AquaCentral became a part of the Heritage Pool Supply Group, which continued to grow under the SRS umbrella. By LGP’s exit, Heritage Pool Supply Group had approximately 10 percent market share, making it the number two player in that sector.
In 2022, SRS bought Imperial Sprinkler Supply, an independently owned distributor of irrigation, outdoor lighting, and other landscape products. The transaction was SRS’s largest landscape acquisition during LGP’s ownership, and increased the company’s footprint in the California market. During LGP’s hold period, SRS executed 32 acquisitions in the landscape distribution space and became the number two player in that sector.
Also under LGP, SRS opened more than 165 greenfield locations.
Ownership works
A founding member of Ownership Works, LGP scored points for sharing the proceeds of the exit with SRS employees, who collectively realized approximately $3.5 billion of gross cash proceeds over the PE firm’s ownership.
“The fact that every employee of SRS participated in the realization was extremely gratifying to us,” Danhakl said. “Broad ownership does in fact work for all… for employees, customers, suppliers, communities and investors. SRS outperformed its competitors because each and every SRS team member was in fact a partner during our journey together. Everybody came to the table with the best they had to offer, and we all worked together towards our ultimate success.”
PE Hub Original Article: https://www.pehub.com/leonard-green-partners-wins-pe-hubs-overall-deal-of-the-year-award-for-18-25bn-sale-of-srs-to-the-home-depot
