HD Supply Acquisition

12 Months Ended

Jan. 30, 2022

HD SUPPLY ACQUISITION

On November 16, 2020, we announced that we entered into a definitive agreement to acquire HD Supply, a leading national distributor of MRO products to multifamily, hospitality, healthcare, and government housing facilities, among others. We believe the acquisition of HD Supply will help position the Company to accelerate sales growth by better serving both existing and new MRO customers. Under the terms of the merger agreement, a subsidiary of Home Depot made a cash tender offer to purchase all outstanding shares of HD Supply common stock for $56 per share. All of the conditions of the offer were satisfied, and the acquisition was completed on December 24, 2020. The acquisition was funded through cash on hand, a portion of which was replaced with the proceeds from our issuance of $3.0 billion of senior notes in January 2021.

The acquisition was accounted for in accordance with Accounting Standards Codification Topic 805 "Business Combinations" and, accordingly, HD Supply’s results of operations have been consolidated in the Company’s financial statements since December 24, 2020, the date of acquisition. We recorded a preliminary allocation of the purchase price to assets acquired and liabilities assumed based on their estimated fair values as of December 24, 2020. Adjustments to our preliminary purchase price allocation recognized in fiscal 2021 were immaterial, and our purchase price allocation is now finalized. Acquisition-related costs were expensed as incurred and totaled $110 million in fiscal 2020, including the $56 million charge related to the settlement of stock-based awards noted below.

The following table summarizes total purchase consideration:


in millions
Total cash consideration for outstanding shares	$	8,637
Value of stock-based awards attributed to services already rendered (1)	55
Total purchase consideration	$	8,692

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(1) In connection with the completion of the acquisition, all HD Supply stock-based awards were cash settled for an aggregate value of $111 million. As the settlement of the awards was at the discretion of the Company, the portion of the fair value of the awards attributed to services previously provided of $55 million was included as part of purchase consideration, with the remaining $56 million recognized as post-combination expense within SG&A in our consolidated statement of earnings for fiscal 2020.

The following table summarizes the recorded fair values of the assets acquired and liabilities assumed:


in millions	Fair Value
Cash	$	912
Other current assets	879
Goodwill	4,872
Other assets (1)	3,936
Total assets acquired	$	10,599

Current liabilities	$	817
Long-term liabilities (2)	1,090
Total liabilities assumed	$	1,907

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(1) Includes identifiable intangible assets of $3.3 billion.

(2) Includes deferred tax liabilities of $815 million primarily resulting from the difference in book and tax basis related to identifiable intangible assets.

The fair value of identifiable intangible assets was determined by using certain estimates and assumptions that are not observable in the market. The fair values were determined using an income based approach, which included significant assumptions such as the amount and timing of projected cash flows, growth rates, customer attrition

rates, discount rates, and the assessment of the asset’s life cycle. The fair value and estimated useful lives of identifiable intangible assets follows:


in millions	Useful Life (Years)	Fair Value
Customer relationships	19	$	2,630
Trade name – indefinite lived	Indefinite	520
Trade names – definite lived	20	150
Total identifiable intangible assets		$	3,300

The goodwill arising from the acquisition is primarily attributable to operational synergies and acceleration of growth strategy, as well as the assembled workforce. The goodwill generated in the acquisition is not expected to be deductible for U.S. federal and state tax purposes.

Net sales and net earnings for fiscal 2020 attributable to HD Supply after the completion of the acquisition were immaterial. Pro forma results of operations would not be materially different as a result of the acquisition and therefore are not presented.