Leonard Green Exits White Cap –

Leonard Green & Partners continues to unload investments from its third fund, this time finding a complete exit for its White Cap Construction Supply Inc. portfolio company through the sale of the business to The Home Depot. Terms of the deal were not disclosed and the transaction is expected to be completed in the next 30 days.

White Cap, with a heavy presence in the western United States, distributes specialty tools and materials to professional contractors. The company has more than 40 locations in nine states.

For Leonard Green’s 1999-vintage Green Equity Investors III, LP, the sale of White Cap to Home Depot marks the first exit so far that has not used an initial public offering as a means for realization. The firm had previously used the public market to exit investments in Petco Animal Supplies Inc. and VCA Antech, and had also sought to float shares of Liberty Group Publishing in 2002, although that offering never did materialize. Leonard Green still maintains public positions in Petco and VCA, which makes the sale of White Cap the firm’s first full exit from its 1999 fund.

“The exit market is as good as it gets,” Peter Nolan, a managing partner at the firm, said. “We’re clearly in more of a sale mode these days, and because of the market’s strength, we expect that there will be more realizations to come.”

Leonard Green originally acquired White Cap in a 2000 public-to-private deal valued at $240 million. While the firm could not disclose the sale price, Nolan did say Leonard Green will corral a 2.5x return on its $88 million investment in the company, giving the firm a total take of $220 million.

Leonard Green was able to grow the business despite some softness in commercial real estate, growing market share primarily through acquisitions. The firm completed a number of deals in the four years Leonard Green owned White Cap, including the purchases of Triden, Specialty Construction Products, Prime Construction Supply and Kel-Welco Distributing, among others. White Cap’s revenue has grown from roughly $300 million in 2000 to more than $500 million today.

“We were actually thinking about taking [White Cap] public,” Nolan said. “But we had also been in discussions with Home Depot throughout the life of the investment. We worked down a dual track with both options-an IPO and a sale-in mind until this offer came to the table.”

Home Depot pursued this deal as a way to penetrate the contractor customer base, a market that the company estimates is approximately $410 billion in size. White Cap targets the large- to medium-sized professional construction companies, and nearly 60% of the company’s sales are dispensed directly to the job site.

White Cap will fit into Home Depot’s Supply Division, which is run by Jim Stoddart. The company has also acquired Creative Touch Interiors, Economy Maintenance Supply Co. and flooring companies Floors, Inc., Arvada Hardwood Floor Co. and Floorworks in its push to build the Supply Division in the past couple of years.