Press Release

Morningstar DBRS Comments on The Home Depot, Inc.'s Announced Acquisition of GMS Inc.; Issuer Rating Unchanged at "A"

Consumers
June 30, 2025

DBRS Limited (Morningstar DBRS) notes that The Home Depot, Inc. (Home Depot or the Company) announced on June 30, 2025, that it has entered into a definitive agreement for its specialty trade distribution subsidiary, SRS Distribution Inc. (SRS), to acquire GMS Inc. (GMS), a leading North American specialty building products distributor. Founded in 1971, GMS operates a network of more than 300 distribution centers with extensive product offerings of wallboard, ceilings, steel framing, and complementary products. In addition, GMS operates nearly 100 tool sales, rental, and service centers, providing a comprehensive selection of building products and solutions for its residential and commercial contractor customer base across the United States and Canada.

Under the terms of the merger agreement, a subsidiary of SRS will commence a cash tender offer to purchase all outstanding shares of GMS common stock for $110 per share, reflecting a total equity value of approximately $4.3 billion and implying a total enterprise value (including net debt) of approximately $5.5 billion (the Transaction). The consummation of the tender offer is subject to customary closing conditions, including regulatory approvals, and is expected to be completed by the end of FY2025 (ending in January 2026). At transaction close, a wholly owned subsidiary of SRS will merge with GMS. The transaction is expected to be funded through cash on hand and debt and is not expected to alter Home Depot's existing deleveraging plan, which has the Company returning to a 2.0 times (x) leverage ratio by the end of FY2026.

Morningstar DBRS notes that the Transaction aligns with the Company's growth strategy and expects it will boost Home Depot's ability to serve specialty trade customers and further consolidate its leading market position in the professional (PRO) segment, as well as provide the Company with an opportunity to realize cost synergies over the medium term. Morningstar DBRS notes that Home Depot has a successful track record of integrating acquired assets, exemplified by SRS' (acquired in 2024) relatively strong operating performance over the last 12 months. The combination of GMS and SRS will enable Home Depot to provide residential and commercial PRO customers with more fulfillment and service options and strengthen the Company's market position as a leading multi-trade distributor. Given the relative size of GMS and Home Depot's existing market leadership position in the home improvement industry, the improvement in the Company's business risk assessment score is considered to be modest.

Morningstar DBRS does not expect the Transaction to have any material impact on the Company's financial risk assessment. At the close of the acquisition, Morningstar DBRS estimates that the pro forma debt-to-EBITDA leverage will increase to 2.5x from 2.3x at the end of Q1 FY2025. However, this metric remains adequate for the current credit rating category, and Morningstar DBRS expects its leverage ratio to return toward the 2.0x level within 12 months from the transaction close, a level considered strong for the current credit rating category. Morningstar DBRS notes that the Company is currently ahead of its deleveraging plan, set at the time of the SRS acquisition in 2024, and continues to maintain prudent financial policies that included the suspension of the share repurchase program to prioritize debt reduction. Morningstar DBRS expects the Company to continue to allocate the majority of its free cash flow (FCF, before any working capital changes) of approximately $7 billion annually toward debt reduction, in line with its deleveraging plan.

Overall, Morningstar DBRS' Issuer Rating and Senior Unsecured Notes credit rating on Home Depot remain unchanged at "A" with Stable trends.

Notes:
All figures are in U.S. dollars unless otherwise noted.

For more information on this issuer or this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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