_{DEAL OF THE MONTH}

Home Depot to Acquire SRS Distribution

Home Depot dropped one of the largest M&A deals of the year.

Home Depot agreed to acquire SRS Distribution for $18.3 billion, or ~16.1x 2023 Adj. EBITDA.

SRS was previously owned by private equity firms, Leonard Green and Berkshire Partners. When Berkshire Partners initially invested in SRS in 2013, it was generating $650M of revenue, today it is producing north of $10Bn of revenue.

SRS is a leading residential trade distribution company that provides professional roofing, landscaping and pool contractors. This provides further integration for Home Depot as it can now leverage its stores and SRS’ professionals to solve complex projects for its customers.

All of that is probably meaningless to you if you are not familiar with either Home Depot or SRS, so below is a chart to help illustrate some of the synergies that the pro forma company will have.

Home Depot plans to finance the transaction with cash on hand, incremental commercial paper and new unsecured notes.

After the transaction, Home Depot will maintain its investment grade rating, and will have pro forma leverage of ~2.5x at closing but has plans to deleverage over the next 24Mo to ~2.0x by pausing share repurchases. Home Depot expects to raise ~$12.5Bn of debt and commercial paper for this transaction.

In the past month, Home Depot is down ~13%. For those of you who remember corporate finance, you know that typically pausing dividends and share repurchases is frowned upon by the public markets, unless you have a better use for the capital. In this case, it seems like investors don’t think this acquisition is a better use for the capital, or they think Home Depot is overpaying for SRS.

Despite how the share price has reacted, it looks like most analysts are maintaining a Buy rating on Home Depot, and we here at Buysiders think that this has the potential to be a transformative deal for Home Depot.

_{UNSOLICITED BID OF THE MONTH}

Mining Deals Rock

Mining is not exactly a sexy sector but it is a sector of extremes. You see tiny deals and restructuring frequently, but you will also see mega-deals that remind you just how large some of these companies are. This is one of those deals.

Without further ado, let’s get into the deal. Australia’s BHP - the world’s largest miner - has lobbed a takeover at one if its rivals, Anglo American. The deal is an all-stock deal at £25.08 per share, or an equity value of £31.1Bn.

Almost every research analyst agreed that this offer price was way too low for the true value of Anglo as there is significant growth upside, particularly in its copper portfolio. Analysts think the take-out price will be around £30/share or more.

Now as is typical with mining deals, there is always a catch. The big catch here, is that BHP does not want exposure to South Africa (which is good because the South African Mining Minister doesn’t want them back either). In order to take no South Africa exposure, Anglo would have to divest its stakes in Anglo Platinum and Kumba iron ore, both of which are already listed in Johannesburg, but that would of course take time.

Another major hurdle to cross would be anti-trust. The pro forma company would be a massive player in copper, a key mineral for the energy transition, so the odds of every country approving the creation of some mega-copper company is pretty low. It is estimated that the PF company could control ~11% of global copper production, making it the largest copper player by far.

Anglo, which has traded up on the news pretty substantially, has rejected the takeover bid (not surprising given what analysts were saying). Anglo believes that this offer is undervaluing its future growth, particularly in copper. 

To add fuel to the fire, activist hedge fund Elliott has gotten involved and has quietly built up a $1Bn stake in Anglo, which will without a doubt cause additional drama as M&A decisions are being made.

It is unlikely that this is the last we hear of this deal, or that no interlopers will emerge, but one of us here at Buysiders likes rocks, so we will keep everyone updated as it progresses.

_{PRESENTED BY RYSE}

Chance to Invest Before this Company Becomes a Household Name

What if you had the opportunity to invest in the biggest electronics products as they launched into big box retail, would you?

Ring changed doorbells and Nest changed thermostats. Early investors in these smart-home companies earned massive returns, but the opportunity to invest was limited to a select, wealthy few. 

Not anymore. RYSE has just launched in 100+ Best Buy stores, and you're in luck — you can still invest at only $1.50/share before their name becomes known nationwide. But hurry, their share price has already grown 20% from their last round!

They have patented the only mass market shade automation device, and their exclusive deal with Best Buy resembles that which led Ring and Nest to their billion-dollar buyouts.

The window to invest is closing - learn more here.

_{DISTRESSED DEAL OF THE MONTH}

Bird Scooters Takes a Ride Through Bankruptcy

Bird Global debuted on the public market in 2019 through a SPAC—a warning sign in hindsight—and reached a peak valuation of $2.5 billion during its Series D funding round.

In its history, Bird has burned more than $1.1Bn in venture funding to try to achieve profitability, which it failed to do after racking up more than $650M worth of losses from 2020 through 2022. 

In September 2023, Bird was delisted for low trading price, and by December it had entered Chapter 11 bankruptcy as its noteholders looked to sell the Company.

The sales process was, not surprisingly, a complete failure. Apparently, the Company’s bankers reached out to 137 potential buyers, of which 81 were strategics. Firms like Lime, Uber, and Citi Bike all were involved in the process, as well as various PE firms.

Ultimately, a consortium of the first and second lien noteholders formed Third Lane Mobility, which was the winning bidder. The first lien noteholders were headed by MidCap Financial (affiliated with Apollo) and the second lien holders were headed by Obelysk, a Canadian PE firm.

The total value of the deal was $145M, a far cry from Bird’s $2.5Bn valuation, and it highlights the issues with the mobility sector. The sector has seen its fair share of consolidation and bankruptcies, as it continues to find a way to become profitable.

I know I rag on SPACs probably once a quarter, but take a look at the graph of the IPOX SPAC Index from 2020 to today, and you will understand why I am the way I am. The index peaked at $940 and is now trading at $581, that is a cool ~40% drop in value since 2021.

_{NEWS ROUNDUP}

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