HD Supply Holdings Inc. is preparing to explore a sale of Waterworks, the largest U.S. provider of water and sewer products to contractors and municipalities, following interest from buyout firms, according to people familiar with the matter.
A divestment of Waterworks, which could fetch more than $2 billion, would allow HD Supply to pay down some of its $4.1 billion debt as it positions its construction and facilities maintenance businesses to benefit from U.S. President Donald Trump’s emphasis on infrastructure spending and tax reform.
HD Supply has been fielding interest in Waterworks from private equity firms with advice from investment bank Goldman Sachs the people said this week. While it will discuss some of these acquisition proposals in the coming weeks, there is no certainty it will decide to sell Waterworks, the people added.
The sources asked not to be identified because the deliberations are confidential. HD Supply and Goldman Sachs declined to comment.
HD Supply shares jumped as much as 3 percent on the news and were trading up 1.6 percent at $43.30 in afternoon trading in New York on Tuesday, giving the company a market capitalization of close to $9 billion.
Based in Atlanta, Georgia, HD Supply is one of the largest industrial distributors in North America. It operates in three divisions: waterworks, facilities maintenance, which sells to multifamily housing, and construction and industrial, which sells to building contractors.
Waterworks had adjusted earnings before interest, taxes, depreciation and amortization in the nine months ending Oct. 30 of $192 million, up from $181 million the year before, according to an HD Supply regulatory filing.
HD Supply was carved out of retailer Home Depot Inc. in 2007 by private equity firms Carlyle Group LP, Bain Capital LLC and Clayton Dubilier & Rice LLC in an $8.5 billion leveraged buyout. It became a public company in 2013.
Last October, activist hedge fund Jana Partners LLC disclosed an 8.1 percent stake in HD Supply and said it had held discussions with the company’s management about possible strategic options. This followed a drop in HD Supply’s stock following disappointing second-quarter earnings.
However, HD Supply shares have risen by more than a quarter since Trump’s election on Nov. 8, on hopes that his promised economic stimulus will compensate for a downturn in non-residential construction and reduced water infrastructure spending.
Last month, Jana reported it had reduced its stake in HD Supply to 4.9 percent.