Lowe’s announced that they are buying another company, the Artisan Design Group, for $1.325 billion.
According to Lowe’s news release, the Artisan Design Group (ADG), is a leading nationwide provider of design, distribution, and installation services for interior surface finishes, including flooring, cabinets, and countertops, to national, regional, and local homebuilders and property managers.
The head of ADG is quoted as saying:
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Our leading position in flooring, cabinets and countertops, combined with Lowe’s scale and category breadth, will allow us to continue on our growth trajectory while providing an even more differentiated and comprehensive offering to the builders and property managers we serve today.
Lowe’s chairman, president, and CEO is quoted as saying:
The acquisition of ADG allows us to build on our momentum with Pro planned spend and is expected to expand our total addressable market by approximately $50 billion.
Lowe’s “will finance the acquisition with cash on hand,” with the acquisition expected to be finalized later this year in Q2 2025.
According to ADG’s website, the company has “acquired over 20 additional companies” since they formed in 2016 from the “merging of two industry leaders.” They currently have over 150 distribution, design, and service facilities in 25 states.
Also according to the corporate press announcement, ADG had “fiscal 2024 revenue of approximately $1.8 billion.”
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ADG will expand Lowe’s Pro offering into a new distribution channel within a highly fragmented, approximately $50 billion market.
I don’t quite understand the implications of this acquisition, or how it might help Lowe’s better appeal to Pro shoppers, but this still seemed like noteworthy news, especially given the amount of money spent. Thoughts?
Robert
My experience (admittedly limited, from being burned) with going through the big box stores for contractors is pretty negative. The two times, things went wrong and each try to slough off the responsibility. And it was exhausting to get it done right. Been much happier hiring contractors directly. So it would be a hard NO using this new feature of Lowes.
James
I was the cleanup guy (for butchered jobs) for a short while a few years ago when I was getting our business off the ground. I would NEVER hire a big box sub contractor.
Sure, they might be great; I’m sure some are excellent. But the pain and stress of possibly having a hack in my house working on water and power (ex: dishwasher)……um, no.
Now, I don’t know anything about ADG…..so not sure where that fits in the picture here.
Scott K
I’ve heard similar stories from friends. Not having personal experience with big box subs, my personal bias is that these are contractors who can’t find steady work outside of the store which probably says something. I’d rather get a rec from a friend or neighbor who can share their experience with someone.
LGonToolGuy'd
2004, had great carpet installation from local Lowe’s in rural AF no name WV town.
20 years can change a lot though.
Matt_T
This appears to be a business to business operation selling to tract home builders and possibly property management companies. I don’t think it’ll affect the “handyman” service Lowes offers.
eddiesky
I was ready to sue Lowes. I had windows installed, by a Lowes contractor (they sub contract as to avoid liability but they are liable when their employee screws up the estimate and measurements…3 visits, loses information and 4th visit incorrect info…). The contractor actually subbed down to … his father. His father improperly installed Pella Windows that I had Pella send out their own tech and he took photos along with details and inspections: improper installation. On confronting Lowes, they just shutup. And the contractor kept repeating: home is balloon frame. No shit. That has nothing to do with improper installation.
Never use a big box for installation.
Lowes is going to (try to) kill the subcontractor with its own “Pro installation and management” because there is money in supporting townhomes and HOAs.
Plus you never get callbacks from contractors (most are busy or offer high cost that if you pay, they will do the work). I know some great contractors and general contractors…and they tell me the customers are getting more demanding, cheap and difficult. Keeping the good clients is best.
Scott K
That’s a big number- and it’s nice to see the acquisition sounds to be financed responsibly rather than piling a ton of debt onto another entity. It seems like this allows Lowe’s to add a number of services without having to build that element of their business from scratch. I think a lot of the services that are currently offered by Lowe’s and HD are really subbed out, this would bring that in-house, right? This may also allow them to sell more product- I’d assume the cabinets and other installation products would be “purchased” from Lowe’s. This may also add value to contractors if they can offer the design services to their clients.
Saulac
Aaaaaand it’s gone! Smack my head everytime I hear another attempt of Lowe’s to serve their Pro customers.
MattT
“Also according to the corporate press announcement, ADG had “fiscal 2024 revenue of approximately $1.8 billion.””
So Lowe’s bought them for less than one year’s revenue? I’m no business expert, but that doesn’t make sense to me.
Farmerguy
Business are generally sold at a multiplier to revenue with an adjustment for “book value”. “Price per earning, P/E ratio” and price to book are the terms.
Imagine you owned a widget company that made 50 years straight a thousand widgets that sold for $10 and cost $5 to make with the reasonable expectation it could continue that margin for another 50 years. You wouldn’t sell that company for $5,000 (1 year net revenue) so you probably would want a multiplier of that profit. Additionally, the widget factory might have $10,000 annual sales, but have a factory with no debt that is worth $20,000. So you also wouldn’t sell that business for $20,000 (the cost of assets, book value) and no value for underlying cash cow. So the bean counters take all that in account and value the business at a number above $5,000, $10,000, or $20,000. Now if a forecast said it could raise prices, cut costs, real estate gains, contracts could be capitalized, the company could be broken up for financial gain without affecting revenue, and everything else could be priced in.
Now if that same company had $10,000 of sales, $8,000 cost of production, no real estate or equipment, and $10,000 in debt, that value would be low.
Or some buyer could overpay for any reason.
Stuart
It seemed strange to me too, but it says nothing about ADG’s profits.
Lowe’s bought the company from the Sterling Group, a “middle market private equity firm.” I’d guess that the $1.325 is a multiple of their annual profits.
Plus, this is news that Lowe’s could hype up to investors as they talk up how they’re improving their pro business to better compete with Home Depot and others.
s
that stood out to me as well. maybe the $1.8B number was from the entire group, and this is only one business within that? but it’s also very odd to state that way–“i got a great deal on this new chevy! only $80k, from GM, whose worth is $44 billion!”
A W
It makes me wonder about the opportunity cost of spending all that cash on a specific subset of their business.
The last time I went to my nearest Lowe’s, they had half the lights off to save on electricity. It gave the place an eerie feel. The last time my wife went there she commented about how much she dislikes being at Lowe’s if any of the kids need to use the bathroom. “The bathroom at Home Depot is really nice. It makes me want to renovate our own bathroom. The bathroom at Lowe’s makes me want to never come back.”
I’m not a corporate exec, but I feel like if they had invested that money in their employees and facilities, they would see a greater return on investment.
Stuart
$1.325 billion over 1700 stores is nearly $780K per store.
Personally, I think that Lowe’s needs to do something about their air quality in stores. I don’t know what it is or where it comes from, but every store I’ve been to always has a layer of grey dust on whatever I’m looking at, especially if it’s made from plastic.
PW
I’ll be honest, 1.3 billion from cash on hand didn’t raise my eyebrows. But when you put it per-store – a quarter million seems like it could get you something.
Though I don’t have a lot of big complaints about the facilities or employees at my local Lowe’s. It’s honestly fairly pleasant with helpful employees. What it seems to lack is customers.
My Lowe’s is 1 block down the street from a Home Depot that does gangbusters business. HD is busy day and night during operating hours. Meanwhile Lowe’s is full of tumbleweeds. Even during peak hours on the weekend, there’s just a smattering of cars in the parking lot. I’m honestly unsure how it’s still open.
I can only guess why. I have to assume it’s some combination of failing to appeal to contractors, and their product options / inventory.
I don’t see how buying a subcontractor addresses any of that.
Mopar4wd
Lowes owns the appliance market in the US with something like 30% market share. Far and away the number one seller of appliances. And lots of them are sold online. Lowes gives alot more floorspace to appliances and is set up much better for showing the off then HD. According to a women I know who manages a lowes nearby they run about 10-14% less per week in sales dollars with about half the foot traffic of the neighboring HD.
A W
Yeah, you could get some decent air filtration for three quarters of a million dollars.
ElectroAtletico
A big nothing-burger. Just like when they bought up the Klein Tools option (and Craftsman). Bahumbug.
Stuart
Lowe’s didn’t buy Klein Tools or Craftsman, those are just suppliers.
Chris
In 2003 I did the install my kitchen cabinets after ordering them from a local custom builder, but dealt with Menards for a counter top with an undermount sink. Everything went great no problems with delivery or install.
A friend ordered cabinets and counter top from Lowes about 3 month’s ago. Cabinets came and the Lowes sub installed no problem. The counter top was ordered. After being given a 4-6 week timeline by Lowes he calls after 3 weeks for a timeline, and was told they weren’t ordered yet.
Needless to say he canceled and was able to get his money back due to not being ordered and went with a local counter top company.
Matt J (Indiana Jones y)
My guess is this is a move mostly to bring cabinets, solid surface, and flooring options in-house and expand white-label goods. Better positions them to undercut local supply houses with same or better margins on the product.
As an architect, I spent some time in the multifamily world and have run across ADG’s cabinetry. It’s certainly on par or better than a lot of the current big-box offerings. No ideas on their solid surface or flooring, but this could be an interesting move from Lowe’s.
Jim Felt
I’ve been in three Lowe’s in three states recently. Not once did I encounter a product knowledgeable sales associate. Not once.
Maybe I’m spoiled by specialty suppliers I normally have accounts with and who truly encourage longer term buyer relationships?
Ben V
Lowes were featured in the Google Cloud conference a few weeks back. Their AI assistant demo was pretty impressive and specifically highlighted not only the purchasing side but also the installation.
Perhaps this is part of their plan to provide a more end to end experience.
Patrick T
I love corporate speaker. Lol.
A few things stand out to me. ADG offers design, distribution and installation. One of the highlighted sentences from Stuart also says that this will expand Lowe’s Pro distribution through a new channel.
I can see this a few ways parsing what they said.
I can see this bringing more design tools into Lowes. Say your a contractor that someone hires for a remodel. Maybe the ADG arm of Lowe’s will offer design services… featuring lowes products of course. Stuff that you might need to bring in a designer for.
I could see this bringing new products to Lowe’s through ADG’s existing distribution network. Or, making it easier to acquire some stuff that they don’t normally carry in store.
And, ADG’s existing services are now Lowe’s services, expanding Lowe’s market. I’m sure there is more profit to be had for installing cabinets, bathrooms, etc.. over dishwashers and appliances.
Maybe it works out. Maybe it doesn’t. Expanding services has to be cheaper, and potentially more profitable, than building more stores. Plus, not everyone has a contractor they trust. If Lowe’s can fill a niche for them, and offer a service that is reliable, good for them.