SRS Distribution Becomes One of the Most Successful Industrial PE Deals of All-Time
Portco news and analysis the week of April 1st, 2024.
Spotlight
Leonard Green and Berkshire Partners have exited SRS Distribution, selling the company for $18.3 billion to Home Depot. Berkshire, a middle-market buyout firm, originally acquired the roofing and building supplies distributor in 2013, when SRS had fewer than 100 branches and was generating about $650 million a year in revenue. Leonard Green joined in 2018, acquiring a majority stake in the company at a $3 billion valuation. Today, SRS has 760 branches across 47 US states, and generates over $10 billion a year in revenue.
The exit marks one of the most-successful private equity deals in the industrial distribution space. Let’s review some of the value creation tactics that made SRS such a good PE-backed investment:
M&A Strategy: SRS pursued an aggressive growth strategy through M&A from the start. Since 2008, the company has acquired 118 independent roofing distributors. Roofing supplies, like many industrial products, are often sold through fragmented, local distribution channels. SRS Chairman Ronald Ross saw an opportunity to consolidate all the disparate local distributors and partnered with AEA investors in 2006 to access the capital needed to pursue a buy-and-build strategy.
End-User Focus: Roofing is a major part of the $450 billion US construction supplies industry, but it can be difficult for mainstream retailers and distributors to access the professional segment of the market. This provided a barrier to entry for SRS that allowed it to grow without ever facing much competition from Home Depot, Lowe’s, Grainger, and other major building supplies distributors.
Industry Executives: Although several PE firms have been involved with SRS over the past 17 years, the company has always been led by executives with experience in the roofing industry. CEO Dan Tinker has over 25 years of experience leading roofing companies, and each of the business unit presidents have 20+ years of experience in the industry. Navigating the relationship-driven trade of roofing products is complex, and the company’s talent management strategy of hiring executives with industry experience was critical to its success.
Moreover, SRS's commitment to its employees and culture was evident in its decision to distribute $250 million to its employees in 2021, as part of an equity incentive plan. These plans are becoming increasingly popular among private equity firms to encourage employee engagement and loyalty throughout the holding period.
