Back in 2007, Home Depot spun the company off to a consortium of private equity sponsors — Bain Capital, Carlyle Group (NASDAQ:CG) and Clayton, Dubilier & Rice — for a deal worth $8.5 billion. At the time, Home Depot’s fortunes looked pretty bleak, with the stock plunging from $40 to $27 … still, unloading HD Supply was a necessary way to generate much-needed cash and begin restructuring.
Obviously, the plan eventually worked out for HD. But will HD Supply enjoy similar success when it comes public?
The company’s size should help. Unlike Home Depot — which operates a chain of massive store locations — HD Supply is an industrial distribution company. With 630 locations in the U.S. and Canada, it has about 1 million SKUs for such things as facilities maintenance, power solutions, flooring, fasteners, pipes, fittings, valves and so on.
HD Supply’s customer base is highly diverse, with about 440,000 contractors, government entities, home builders and industrial operators. In fact, Home Depot only accounts for 3.9% of HD Supply’s sales.
The distributor enjoyed solid growth during the past year. For the first nine months of 2012, revenues went from $5.38 billion to $6.04 billion and adjusted EBITDA climbed from $406 million to $529 million. (The company reports its financials with the SEC because it currently has publicly traded notes).
Right now, it looks like HD Supply is in the process of interviewing investment banks, so don’t expect anything to happen before summer. But when the time comes, it will probably be one of the year’s largest transactions — and that means institutions will be able to get meaningful allocations of the stock.
All of these are favorable signs for an HD Supply IPO … and considering Home Depot currently holds a 12.5% stake in the company, a successful offering could mean a nice boost for HD shareholders, too.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of “How to Create the Next Facebook” and “High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders.” Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.