It’s a tough sales environment for hardware stores with macroeconomic factors impacting the consumer. It’s forced both Home Depot and Lowe’s to lower their earning forecast recently.
While the large retail chains are weathering the storm, smaller ones are starting to succumb to it. The latest is True Value who announced today that they have agreed to a sale to competitor Do It Best.
Chapter 11 Acquisition
True Value’s sale is not a conventional asset or stock sale. They’re going through the Chapter 11 bankruptcy process first, but with a leading bid from Do It Best.
After a thorough evaluation of strategic alternatives, we determined that the sale of our business was the path forward to maximize value and best serve our retail partners and other stakeholders into the future. We believe that entering the process with an agreed offer from Do it Best, who has a similar decades-long history in the home improvement space and also operates with a focus on supporting members and helping them grow, is the most beneficial next step for True Value and our associates, customers, and vendor partners. We thank these valued stakeholders for their continued loyalty as we work to secure a stronger future for True Value.
Chris Kempa, True Value’s Chief Executive Officer
The way that it works under Section 363 of the Bankruptcy Code, the leading bid (also known as the “stalking horse bid”) is shopped in the market over a short period of time. This is an effort to receive the highest price for the underlying assets.
The purpose is to pay creditors the highest amount, as quickly as possible. Time is important because the value of the underlying assets may be eroding and operating losses continue to occur. The assets will be purchased free of liens, and the creditors will receive an share of the purchase price.
Deal Terms
Do It Best has offered $143 million in cash for True Value and they’ll assume up to $45 million in liabilities. To fund operations during the sale process, True Value will use their cash collateral, and if they need additional financing, Do It Best has agreed to provide it.
A successful acquisition of True Value assets would represent a strategic milestone for Do it Best and home improvement retailers around the world. Do it Best has a proven track record of driving profitability through the most efficient operations in the industry. This acquisition, if consummated, would provide True Value and independent hardware stores the strongest opportunities for growth for years to come.
Dan Starr, Do it Best President & Chief Executive Officer
True Value’s 4,500 stores are independently owned and operated, with the exception of one company store in Palatine, IL. During the sale process and proceedings, the 75-year-old brand will continue to serve those locations. The transaction is expected to close by the end of the year.
Do It Best Growth
Do It Best has been growing rapidly over the past year through mergers and acquisitions. They acquired United Hardware last spring, which added 700 stores to their existing 3,500 store count.
With the True Value acquisition, it should give them a higher store count than Ace Hardware, the largest competitor in the co-op space. True Value last reported annual net revenue of $4.5 billion for their fiscal year that ended in June.