For the second time in three years, HD Supply Holdings Inc. turned to a private equity buyer — specifically, New York-based firm Clayton, Dubilier & Rice — for unloading a large asset, amassing a pile of cash and shifting its portfolio priorities elsewhere.

On Tuesday, the Atlanta-based company announced it had agreed to sell the company’s Construction & Industrial – White Cap business to an affiliate of private equity firm CD&R for $2.9 billion.

The deal is expected to close in October and net HD Supply $2.5 billion after taxes and transaction costs. That’s a lot of scratch for HD Supply to not only refocus on its core business of Facilities Maintenance but also pay down debt and return capital to shareholders, as the company’s president and CEO, Joe DeAngelo, outlined in Tuesday’s press release.

“After a detailed evaluation, we determined that a sale of our White Cap business unit to Clayton, Dubilier & Rice is in the best interests of our HD Supply stockholders,” he said. “This transaction will enable the HD Supply leadership team to intensify our focus on Facilities Maintenance, while also returning capital to our HD Supply shareholders.”

What’s more, it now allows HD Supply to pursue other acquisition targets and bolster a portfolio that has shrunk considerably in the past seven years. HD Supply was once part of Home Depot before being sold to a consortium of private equity firms, including CD&R, in 2007. The PE firms divested their interest in HD Supply when the company went public in 2013.

In the years that followed, HD Supply began selling off parts. In 2015, it sold its Power Solutions division to Anixter International Inc. (since acquired by WESCO). And in 2017, the company sold its Waterworks division to CD&R (the company has since changed its name to Core & Main). Now this deal with White Cap.

“CD&R has reacquired roughly half the business that they divested themselves of when HD Supply went public since 2017 with the White Cap and Core & Main acquisitions,” said John Gunderson, MDM VP Analytics.

Another Shift in Evolving Marketplace 

HD Supply had originally planned to spin off the Construction & Industrial – White Cap business into a separate publicly traded company but decided PE was again the right path for divestiture. While the company didn’t hold a special conference call Tuesday morning after the announcement — as companies sometimes do with large deals — HD Supply said it will instead discuss the move in more detail during next month’s second-quarter earnings call.

Shares of HD Supply (Nasdaq: HDS) jumped $3.47, or 9.1 percent, to $41.71 at market close Tuesday, but some analysts questioned the divestment and the long-term value the company will see with Facilities Maintenance as a standalone business.

Another question is what White Cap resembles when the dust settles. CD&R said that once the transaction is complete, John Stegeman, White Cap’s current CEO, and Alan Sollenberger, White Cap’s current president, are expected to continue to lead the Construction and Industrial business, which will include the White Cap, Home Improvement Solutions and Brafasco businesses.

CD&R, in its own release on Tuesday, spelled out what it has in store for its latest asset. The firm plans to combine White Cap with Construction Supply Group — and its 17 nameplates. In this ownership arrangement, CD&R will hold 65% of the resulting entity and Sterling Group, owner of Construction Supply, will hold the remaining 35%. The combined transaction is valued at $4 billion and is subject to regulatory approvals.

According to CD&R, “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 $4 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.”

Added Nate Sleeper, CD&R’s CEO, “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. 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 capitalize on the many promising value creation opportunities we believe this strategic combination offers.”

The move is sure to shift MDM’s Market Leaders list, especially within Industrial Distribution. HD Supply sat at No. 3 among the Top Industrial Distributors and No. 9 among the Top Building/Construction Material Distributors. Now it has shrunk, and a new player has emerged.

“The CSG platform has collected 16 different regional brands from leading companies such as Border Construction Specialties, Hub Construction Supplies, Stetson Building Products, and Brock White Construction Materials to position themselves as a leading player in their space,” Gunderson said. “CSG has kept their 16 local brand names active, and these two companies will be a combination of the two largest companies in the Concrete, Masonry, and Specialty Contractor supply channel.”

This is the second massive deal of 2020 following WESCO International Inc.’s $4.5 billion acquisition of Anixter International Inc. That deal dates back to late 2019 when WESCO first made an offer to Anixter, which, at the time, was entertaining a deal with — you guessed it, CD&R. After months of due diligence and shareholder approval, the deal closed in June.

Stay tuned to mdm.com for updates to HD Supply’s divestment in the coming months. And look for more analysis on the deal — including the impact on customers and end markets — on our blog and in MDM Premium.

Editor’s note: John Gunderson was a distributor leader at HD Supply and was on the leadership transition team during the sale of the $2 billion HD Supply Power Solutions business to Anixter from 2014-2017.