Home Depot Inc. is dipping its toe in the banking waters by way of an acquisition.
The Atlanta company said Tuesday that it is buying EnerBank USA, which makes home improvement loans to consumers through remodeling contractors.
EnerBank had $76 million of net loan assets on its balance sheet at the end of 2005. Buying it would give Home Depot another revenue stream, solidify its contractor relationships, and help it differentiate itself from the smaller Lowe's Cos.
Eric Bosshard, an analyst with First Horizon National Corp.'s FTN Midwest Securities Corp., called the deal "a logical step."
"It's not a big deal, so Home Depot isn't making a big bet," Mr. Bosshard said. "This is a small bank they can use to evaluate if there's a way to create value for their customers. It's all about becoming more important and relative to their professional customers."
The seller is CMS Energy Corp. in Jackson, Mich., a provider of natural gas and electricity. CMS is selling its nonstrategic assets, spokesman Dan Bishop said.
The price of the deal was not disclosed. The deal has to be approved by regulators in Utah, where EnerBank is chartered, and by the Federal Deposit Insurance Corp.
The retailer's Home Depot Supply business targets, among others, contractors, home builders, and municipalities. That is one of several growth areas Home Depot is focusing on.
Robert Nardelli, Home Depot's chairman, president, and chief executive, said in January the retailer expected Home Depot Supply to account for 18% to 19% of its sales by 2010. Jim Stoddart, Home Depot's senior vice president for growth initiatives, said in an interview that the EnerBank deal "fits with the strategy of creating relationships with professional contractor customers."
EnerBank is unique because its loans "come through contractor referrals, and that gives contractors a tool to be more successful," Mr. Stoddart said. "EnerBank helps the type of smaller, local contractors who come into our stores."
Contractors get nothing from Home Depot or EnerBank for customer referrals, Mr. Stoddart said.
Customers should not look for any signs or promotions for EnerBank in Home Depot stores - Home improvement loans through EnerBank would not be offered through Home Depot stores. The retailer plans to stick with EnerBank's model of operating only through contractor referrals, Mr. Stoddart said.
He said Home Depot has no plans to replace any of its loan programs. It offers two types of private-label credit cards to customers through a partnership with Citibank. Proprietary credit card sales accounted for about 26% of store sales in fiscal 2005, according to Home Depot's 2005 10-K filing with the Securities and Exchange Commission. The filing also says that Home Depot offers home improvement loans.
