The Home Depot subsidiary HD Supply announced its acquisition of Houston, Texas-based flooring supplier Redi Carpet, a next-day flooring installer for the multifamily industry. It operates 34 branches across the country.
The HD Supply announcement on August 2 sent waves through the multifamily and single-family rental (SFR) world and continues the rapid pace of consolidation in the space that has been going on for years. The deal represents HD Supply’s first acquisition since returning to the Home Depot family in November of 2020. The Home Depot re-acquired HD Supply Holdings in $8 billion after Home Depot had originally divested it to private equity in 2007.
What Does this Mean for Redi and HD?
HD Supply has an existing business, Renovations Plus, serving the commercial, institutional and multifamily markets, but prior to now it did not have a flooring services solution. This deal provides access for HD Supply to the $5BN+ MF and SFR flooring market, which we estimate to represent approximately one-third of all tenant turnover and tenant improvement dollars—a massive share of wallet that Renovations Plus did not previously have in their portfolio.
The name of the game for HD Supply will be leveraging Redi’s broad customer and installer network to cross sell flooring services to the doors they currently serve with other solutions. The existing Redi business already has a large footprint serving the Northeast, Southeast, Midwest and Southwest with large market share in both Texas and Florida. We expect the near-term strategy from HD to focus on continuing to execute on that footprint while chasing market share in geographies where Renovations Plus has customers and Redi can serve from existing locations. For Redi, the acquisition gives them the opportunity to add additional customers and gain a strong financial backer to pursue additional acquisitions and geographic expansion.
For HD Supply, the acquisition provides diversification away from their existing common area and unit refurbishment business, where we expect to see some softness as rental growth moderates and property owner profits face pressure from higher financing costs and slower rental growth as additional MF and SFR capacity comes online. They also acquire a proven acquisition platform from which they can continue to grow the business both organically and through M&A.
What Does this Mean for Other Market Players?
This industry is no stranger to M&A activity and consolidation, but until now the two largest players have been Interior Logic Group’s (ILG’s) Property Services division and Artisan Design Group (ADG), both backed by private equity. With Home Depot, we are seeing another 800-pound gorilla enter the space and one of the largest independent operators being absorbed by a larger corporate entity.
We see both risks and opportunities here for the remaining players. Consolidators in the space, including ILG and ADG, but also Impact Property Solutions, Rasa, Real Floors and others will be sure to take notice. There is now another well-capitalized buyer to compete with for the remaining top-quality independent sellers in the space. We view this as unequivocally good news for independents who may be looking to transact in the future.
What could this mean for the operational side of the business? Clearly HD Supply will be looking to extend Redi’s existing business, which naturally means attempting to take share from current install services providers. Competition for some customers is likely to heat up over the coming months and years which could put some providers in a tougher situation.
However, it’s important to remember that price, while important, is not the only, and often not even the most important differentiator in this market. Property managers and owners rely on installers to provide quick and transparent timing, frequent communication, and reliable quality. Large corporate acquisitions can be disruptive, especially in the near term, and any fumbling of customer relationships or talent turnover as a result of this deal could provide competitive inroads for operators looking to retain and grow share. This may well present potentially compelling opportunities for independent operators.
The Bottom Line
HD Supply’s acquisition of Redi Carpet represents a clear shot across the bow to the MF and SFR flooring installation market. We now have yet another major consolidator willing to lean in and pay a premium for the opportunity to get into and dominate this market. Independent operators will need to assess the balance of risks and opportunities this presents to them. They will also need to redouble their efforts in communicating their specific value proposition to their customers, with a large competitor looking to get bigger with a massive balance sheet and infrastructure behind them. Finally, they will need to wrestle with the question of how, if at all, they participate in ongoing reorganization of the industry. Are they buyers or sellers? Should they look to combine with similar sized operators to gain economies of scale and/or make themselves more attractive targets? There is no single right answer but each owner/operator will have to think carefully about these questions to decide what is best for them.
The other major acquirers/consolidators will need to review their own pipeline in light of this announcement and determine where and when they can be most competitive. In addition, they will need to sharpen their message on what, beyond price and value, makes them an acquirer of choice for potential sellers.