National Waterworks is principally owned by private equity firms JPMorgan Partners, an affiliate of JPMorgan Chase & Co., and Thomas H. Lee Partners, L.P.
Its network of more than 130 branches in 36 states will become part of The Home Depot's maintenance, repair and operations products (MRO) growth platform, National Waterworks said. For the fiscal year ended Dec. 31, 2004, National Waterworks reported net sales of $1.5 billion.
“In the three years since we acquired National Waterworks with JPMorgan Partners and Thomas H. Lee Partners, we have experienced substantial growth in sales and profitability,” said Harry K. Hornish Jr., president and CEO of National Waterworks. Hornish will continue to lead the company, along with an established management team with an average of more than 20 years' experience, according to Home Depot.
“Key business-to-business opportunities that add new customer channels are a vital part of our strategy,” Joe DeAngelo, president of The Home Depot Supply, said in a statement. “We were attracted to National Waterworks because of its top position in the industry, use of customer facing technology to differentiate itself and the track record of its leadership team. We are pleased that they will continue to play a critical role in driving growth for the organization.”
The business model used by National Waterworks, which includes a single IT system that takes the customer “from quote to cash,” can be adopted to drive enhanced efficiency and execution throughout the Home Depot Supply business and provide reverse synergies back into other Home Depot operations, DeAngelo said in a Webcast conference call.
This acquisition enables The Home Depot Supply to serve a new Pro customer channel. Water and sewer line construction represents about $11 million of the $120 billion U.S. pro heavy construction and industrial market, Home Depot estimated.
“Three major players capture about 33% of the [waterworks] market,” DeAngelo said.
“National Waterworks is a leader in its market with an estimated 14% share,” Carol Tomé, executive vice president and chief financial officer of The Home Depot, said in the same conference call. “This leadership position is true of their financial performance as well,” she added, pointing to the company's 9% annual growth rate.
Hughes Supply, Orlando, Fla., has about 12% market share in waterworks transmission equipment distribution; Ferguson Enterprises, Newport News, Va., has about 7%; and the remaining 66% is divided among other distributors, according to The Home Depot, which drew on data from the U.S. Economic Census, public filings and its own estimates.
The waterworks industry has a fragmented customer base, with no single customer representing more than 1% of sales, DeAngelo said. The market includes 54,000 public drinking water systems, 16,000 water treatment works and more than 100,000 waterworks contractors.
The waterworks market has solid growth potential and has been growing at a steady 7% annually, he said.
By the year 2020, more than 50% of the water infrastructure in the United States will be outdated and require significant replacement and repair, The Home Depot reported.
Asked by a caller what new markets still exist for Home Depot Supply to enter, DeAngelo responded, “We love MRO, we have entered into infrastructure now. Another [area] that is very attractive to us is industrial. We are actively pursuing that.”
The Home Depot Supply will continue to grow in both the builder market and the professional supply market, he said, noting, “The Home Depot Supply is expanding its business by growing organically and acquiring best-in-class companies that share our commitment to customer service, operational excellence and growth.”
In addition to the National Waterworks transaction, The Home Depot acquired Utility Supply of America (USABlueBook) earlier this year. USABluebook is a national catalog distributor of MRO supplies to the water and wastewater treatment industry.
“Utility operates a heavy sku distribution center-based catalog Internet business,” DeAngelo said. “It can service municipal waterworks in full fashion.”
The Home Depot Supply intends to run the two companies as separate entities for now, he said in response to a question about possible consolidation.
- Pat Lenius