Lowe's Cos. agreed to buy two companies that sell products to apartment-building managers and owners in deals worth more than $500 million, moves aimed at diversifying its business beyond do-it-yourself homeowners.
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The Mooresville, N.C., home-improvement retailer said it would pay $512 million for Houston-based Maintenance Supply Headquarters, which sells appliances, flooring, lighting and other supplies primarily to apartment complexes in the western and southern U.S. The deal is expected to close in the coming months.
In addition, Lowe's said that in November it bought Central Wholesalers Inc., an apartment supplier with business in the mid-Atlantic and northeast regions. It declined to say how much it paid for the Laurel, Md., company.
The two firms primarily serve owners and managers of rental properties and other multifamily buildings. In an interview with The Wall Street Journal, Richard D. Maltsbarger, Lowe's chief development officer and president of international, said "the combo of these two give us the right play for a nationwide presence."
Lowe's is the U.S.'s second-largest home-improvement retailer by sales. Its rival, Home Depot Inc., has outpaced Lowe's in recent quarters in part because the Atlanta company has an edge in sales to contractors and other professionals, a faster-growing business segment than do-it-yourself shoppers. About 40% of Home Depot's sales are to professionals, compared with about 30% at Lowe's.
The two acquisitions help Lowe's bolster its professional business, which already includes special counters in stores to serve those customers and relationships with contractors at home-building companies, said Mr. Maltsbarger. It also helps Lowe's broaden its customer base to businesses that serve the rental market.
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While there are signs that homeownership rates might be rising after years of decline, "we are still talking about 30% of the U.S. population living in homes they rent," Mr. Maltsbarger said. "We are at the right time to pull these resources together and tap into this continuing macro trend."
The homeownership rate peaked at just over 69% in the mid-2000s before falling to a 50-year low of 62.9% in the second quarter of 2016, according to the U.S. Census Bureau. It has hovered around 63.5% for several quarters.
Lowe's acquisitions come two years after Home Depot's $1.63 billion purchase of Interline Brands Inc., a seller of maintenance and repair products. At the time, Home Depot cited the rising rates of renters as a driver for the purchase. On Tuesday, Home Depot reported a 5.5% increase in sales at its stores open at least a year, noting that sales of "professional" products grew twice as fast as do-it-yourself-oriented items. Lowe's reports its first-quarter earnings on May 24.
The home-improvement sector, boosted by the strong housing market, has been a rare bright spot in a retail landscape battered with store closures and falling sales. Lowe's hasn't been immune to all of the headwinds, however, cutting its full-year profit outlook last November because of weaker-than-expected store traffic. In January, it began cutting several thousand jobs and shuffling others as it moved more workers to customer-facing roles.
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(END) Dow Jones Newswires
May 18, 2017 05:59 ET (09:59 GMT)