Every once in a while, reading an 8-K pays off.
See, the last time I talked about construction and maintenance supply wholesaler Hughes Supply
Well, on Tuesday morning, the monkey touched the monolith, and Home Depot announced that it was acquiring Hughes Supply for $46.50 a share in cash -- making the deal worth a grand total of just under $3.5 billion when you include the assumed debt. Not only is Home Depot paying a 21% premium to Monday's closing price, but also it seems to be paying a premium to fair value. Not a large premium, mind you, but a premium nonetheless.
Home Depot management expects this deal to add to earnings in the first year, and it should more than double the size of its Home Depot Supply business to around $12 billion in revenue this year. As I've mentioned before, this is a big opportunity for Home Depot -- a fragmented market worth more than $400 billion a year where the company should be able to grow at double-digit rates, something that's just not going to be easy to do with its retail business.
And this isn't the only new growth avenue that the company is exploring. Monday, Home Depot announced that it was acquiring Chem-Dry for an undisclosed sum. Chem-Dry franchises carpet and upholstery cleaning businesses, with about 2,500 franchises in the U.S. alone. Now, I'm not a tremendous fan of Chem-Dry itself, but I won't deny that it could significantly expand Home Depot's service business -- another area that management is targeting for future growth.
In a nutshell, this is why I think the worries about Home Depot being tied to the housing/refinancing boom or facing saturation, or both, are a little silly. Simply put, good companies find new avenues for growth. Microsoft
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).