HD Supply inked a deal to sell its HVAC operations to Watsco Inc. in its second divestment since a trio of private equity firms bought it for $8.5 billion.
Watsco Senior Vice President Barry Logan said that the Coconut Grove, FL-based HVAC distributor signed a non-binding letter of intent to acquire the HD Supply branches that sell the Rheem line of HVAC products, primarily in the Southeast.
“We’re in the process of doing our due diligence,” Logan said, adding that the proposed deal does not include any portion of HD Supply’s plumbing operations. Watsco also bought ACR Group Inc. in July for roughly $110 million.
If it moves forward, the transaction would close in the first quarter of 2008. The assets will become part of Watsco's Gemaire group in Ft. Lauderdale, FL.

The HVAC operation is the second business Orlando-based HD Supply decided to shed after it agreed to sell its lumber and building materials division to Denver-based building materials distributor Pro-Build Holdings Nov. 30.
A trio of private equity firms paid $8.5 billion for HD Supply in August. At the time, the new owners said they intended to continue to pursue acquisitions, but the downturn in the residential construction market likely caused them to reevaluate their plans, said Jonathan Skelly of PCE Investment Bankers.
“The sale of their lumber business was a natural,” Skelly said. “The business is just not profitable the way it used to be, so my sense is that they were cutting their losses. Lumber pricing has decreased quite sharply since they acquired those businesses… I think HVAC is a very similar scenario. It’s a more regional business for the company. They do not have a national presence in HVAC.”
Skelly said HD Supply’s new owners are likely to examine other businesses in the same light.
“I think they’re going to pursue a very similar type of analysis, [in] their electrical business for example,” he said, adding that, like the lumber and HVAC operations, that business is a very regional operation.

HD Supply will hold onto its plumbing assets; however, it is unknown yet what the company will ultimately focus on as it moves forward.

In related news, HD Supply also plans to close its Mobile, AL, HVAC and plumbing supply branch by the end of the week, the Alabama Press-Register reported.
A spokeswoman for the Atlanta-based building materials distributor told the newspaper that the closure of the 12-employee branch is due to the ongoing housing slump.