Low.US (LOW.US) spent $8.8 billion to buy building materials company FBM! Wall Street is optimistic about cross-selling potential

The Zhitong Finance App learned that US home building materials retail giant LOW.US (LOW.US) announced the acquisition of Foundation Building Materials (FBM) for 8.8 billion US dollars, setting a record for the largest merger and acquisition in the company's history. The deal will be completed through a mix of short- and long-term debt financing, which includes a $9 billion bridge loan commitment.

FBM operates more than 370 outlets in the US and Canada, providing about 40,000 professional customers with products such as gypsum board, insulation materials, metal frames, ceiling systems, commercial doors, hardware and supporting building materials. In 2024, the company achieved revenue of $6.5 billion and an adjusted EBITDA of $635 million.

The deal, which is expected to close in the fourth quarter, is expected to contribute to Lowe's profit growth in the first fiscal year after delivery. On the balance sheet side, Lowe's expects the leverage ratio to rise to 3.4-3.5 times when the transaction is completed. The company plans to suspend share repurchases and strive to reduce the leverage ratio to 2.75 times by the end of the second quarter of 2027.

Wall Street reacted positively to this:

Christopher Horvers, an analyst at J.P. Morgan Chase, points out that the urgency of mergers and acquisitions in the specialty distribution market is increasing significantly. As competition among enterprises to expand their potential market size and build differentiated business capabilities intensifies, this will become a focus area.

Jefferies analyst Jonathan Matuszewski believes that Lowe's strategy to accelerate the expansion of large and complex specialty markets will pay off: “Through the acquisition of ADG and FBM, Lowe's has built a leading interior solutions platform in the attractive field of new construction and renovation.” He pointed out that in the future, Lowe's will be able to provide faster contract fulfillment services, a richer product line, upgraded digital tools, and a stable trade credit platform for professional customers in the construction and renovation industry. In addition to potential cost synergies, the new business will also present significant cross-selling opportunities. Looking ahead, Lowe's may continue to promote complementary mergers and acquisitions.

UBS analyst Michael Lasser commented, “In the short term, this move will enable Lowe's ability to fulfill contracts faster, enhanced professional digital tools, trade credit programs, and considerable cross-selling opportunities; in the long run, it will help it dig deeper into larger professional segments in the home improvement market.”

Seeking Alpha analyst Luca Socci emphasized that professional customers can bring higher sales and customer unit prices, and have repurchase characteristics, which is Lowe's ideal expansion direction.