An order of fusion machines and custom fittings sold by HD Supply Fusible Piping’s Poca West Virginia shop, ready for delivery to a customer’s jobsite.


 


Clayton, Dubilier & Rice (CD&R) has reached an agreement with HD Supply Holdings Inc. to acquire the HD Supply Waterworks Division for $2.5 billion.


Through, a carve-out transaction, HD Supply Waterworks (Waterworks) will become an independent company, wholly-owned by CD&R funds. The transaction is expected to close in HD Supply’s third fiscal quarter of 2017 subject to customary regulatory approvals.


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“After a detailed evaluation, we determined that a sale of our Waterworks business unit to Clayton, Dubilier & Rice is in the best interests of our Waterworks associates and HD Supply stockholders,” said Joe DeAngelo, HD Supply chairman, president and CEO. “This significant strategic transaction will further simplify and focus HD Supply on our highest value creation opportunities, accelerate debt reduction, create additional cash to enable next generation growth investments and innovation as well as return cash to HD Supply stockholders.”


Waterworks is a leading U.S. distributor of industrial and construction products used to build and maintain underground water, wastewater and drainage infrastructure networks.


Steve LeClair, who has served as the President of Waterworks since 2011, will become the CEO. “This transaction is an important milestone in the strategic growth of Waterworks,” said LeClair. “The Waterworks team is very excited to reunite with CD&R to accelerate our growth and productivity initiatives.”


Waterworks operates a national network of 244 branches in 46 states with a sales team of more than 1,700 sales representatives serving a diverse customer base of more than 37,000 municipalities, private water companies and professional contractors. Waterworks will continue to be headquartered in St. Louis, Missouri.


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“Waterworks represents an attractive opportunity to invest in the leading distributor in the U.S. waterworks market, which stands to benefit from tailwinds in construction activity and municipal infrastructure spending,” said CD&R partner J.L. Zrebiec. “With strong national, regional and local positions and a reputation for customer service and reliability, the company is in a very favorable long-term position.”


Jim Berges, a CD&R Partner, will serve as chairman of Waterworks. Berges was chairman of HD Supply from 2007 to 2015. CD&R invested in HD Supply in 2007 and exited the investment in 2014. Previously, Berges served as vice chairman and president of Emerson Electric Co.


“Through our prior investment in HD Supply, we have a great appreciation for the strength and quality of the Waterworks business and the exceptionally talented Waterworks management team,” said CD&R partner Nate Sleeper. “We are very excited to work alongside them once again to continue to build on the company’s leading market position and pursue the many significant profitable growth opportunities available to it as a freestanding business.”


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CD&R has obtained committed financing from Barclays; BofA Merrill Lynch; Citi; Credit Suisse Securities (USA) LLC; Deutsche Bank AG Cayman Islands Branch; Deutsche Bank AG New York Branch; J.P. Morgan; and RBC Capital Markets, LLC. Barclays; BofA Merrill Lynch; Citi; Credit Suisse Securities (USA) LLC; Deutsche Bank Securities Inc.; J.P. Morgan; and RBC Capital Markets, LLC acted as financial advisors to CD&R. Debevoise & Plimpton LLP served as CD&R’s legal advisor in the transaction.


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