Analysts dig into the potential race between QXO and Home Depot to buy GMS

Home Depot (NYSE:HD) is in the spotlight after reportedly entering a competitive bidding process to acquire GMS (NYSE:GMS), a major U.S. building-products distributor specializing in drywall, ceilings, steel framing, gypsum, and related materials. The home improvement retailer is in competition with building products distributor QXO (NYSE:QXO) for GMS, which made an unsolicited all-cash offer of $95.20 per share for GMS, valuing the company at approximately $5 billion including debt.

Home Depot (NYSE:HD) has not confirmed that it made an offer for GMS (NYSE:GMS). For its part, QXO (NYSE:QXO) said it would proceed with a hostile takeover and take the offer directly to shareholders if GMS management rejects its proposal. The Brad Jacobs-led firm issued a June 24 deadline for its offer.

Evercore ISI analyst Greg Melich noted that a GMS (GMS) acquisition would be consistent with Home Depot’s (HD) strategy to grow in complex pro and help to fully unlock a $1 trillion total addressable market.

“While GMS would fit into HD’s Pro expansion strategy, the market is likely to keep a watchful eye on the size and price of future acquisitions, especially if a race develops to consolidate thefragmented construction & tools market,” highlighted Melich.

Of note, Home Depot (HD) acquired SRS for $18 billion earlier in the year. The company acquired SRS to expand its Pro ecosystem and grow market share, particularly in complex project areas.

Shares of GMS (GMS) jumped 33% last week amid the M&A developments. On Seeking Alpha, analyst Badsha Chowdhury broke down the implications of QXO’s (QXO) bid for GMS (GMS). If successful, it will create a behemoth in the housing and construction industry. “Despite lower cash flows, it renders the balance sheet sufficient strength to weather the current geopolitical uncertainty,” he highlighted.