Clayton, Dubilier & Rice to combine HD Supply’s White Cap Business with Construction Supply Group in USD4bn deal

Clayton, Dubilier & Rice (CD&R) has reached an agreement with HD Supply Holdings under which CD&R funds will lead an investment to acquire HD Supply’s Construction & Industrial business (aka White Cap), a distributor of specialty concrete and construction products, and combine it with the Construction Supply Group (CSG), a distributor of specialty concrete and masonry accessories. 

Upon the closing of both transactions, CD&R funds will hold a 65 per cent ownership interest in the combined company, and the current shareholders of CSG, led by The Sterling Group, will hold a 35 per cent interest. The combined transaction, valued at approximately USD4 billion, is subject to customary regulatory approvals.

The combination is intended to create a leading North American distributor of a diverse mix of concrete accessories and specialty construction and safety products with more than USD4 billion in annual revenue. White Cap operates 270 branches with approximately 5,500 employees and offers more than 400,000 SKUs to 200,000 customers. With 130 branches and approximately 2,000 employees, CSG has a highly complementary footprint to White Cap in terms of product offering and geography, offering more than 60,000 SKUs to 65,000 customers.

“We developed strong confidence in the White Cap management team during our prior ownership of HD Supply, as they successfully managed through the global financial crisis,” says Nate Sleeper, CD&R’s Chief Executive Officer. “Over the past several years, the CSG team has built a strong new leader in the industry. We are excited to work alongside both teams to capitalise on the many promising value creation opportunities we believe this strategic combination offers.”

John Stegeman, White Cap’s current CEO, and Alan Sollenberger, White Cap’s current President, are expected to lead the new combined business, which will include the White Cap, Home Improvement Solutions and Brafasco businesses, as well as CSG.  CD&R Operating Partner Phil Knisely, former executive vice president and corporate officer of Danaher Corporation, will serve as Chairman of the combined company.

“This transformational combination simultaneously increases our product and service offering, capabilities, and diversification and establishes our business as a focused, independent company,” says Stegeman. “We are enthusiastic about the opportunity to join forces with the many talented associates and leaders at CSG to enhance our collective ability to serve our customers. Following this transaction, we will be very well positioned to pursue both organic and inorganic growth opportunities aligned with our strategic priorities.”

Mitch Williams, Chief Executive Officer of CSG, says: “We are excited about the opportunities this will bring to our employees, customers, and suppliers. We look forward to our new partnership with CD&R and the continued support of The Sterling Group as we continue to seek growth opportunities to better serve our customers."

“We are proud of the business the CSG team has built over the last four years and see this combination as the next step in our vision to build the leading construction supply distributor in North America,” says Brian Henry, Partner at The Sterling Group.

The acquisition of White Cap is expected to close in October 2020 and is not conditioned on the closing of the acquisition of CSG.

Goldman Sachs & Co, LLC served as financial advisor and Jones Day served as legal counsel to HD Supply on the transaction. Deutsche Bank Securities Inc.; RBC Capital Markets, LLC; BNP Paribas Securities Corp.; and Credit Suisse served as financial advisors and Debevoise & Plimpton served as legal counsel to CD&R on the transaction. Jefferies LLC served as financial advisor and McDermott Will & Emery served as legal counsel to The Sterling Group and CSG. CD&R has obtained committed financing from Deutsche Bank Securities Inc.; RBC Capital Markets, LLC; Jefferies LLC; BNP Paribas Securities Corp.; and Credit Suisse.