Floor & Decor Inks $90M Deal To Snap Up Spartan Surfaces

Specialty retailer of hard-surface flooring and accessories Floor & Decor Holdings (FND) agreed to acquire Spartan Surfaces for a total consideration of up to $90 million. The latter is a commercial specialty hard-surface flooring distributor.

Floor & Decor plans to fund the acquisition with available cash and $5 million worth of its common shares. Notably, a portion of the purchase price will be paid through 2024, dependent on the achievement of pre-agreed annual performance goals.

Floor & Decor expects the transaction to close in Q2 FY2021.

Floor & Decor CEO Tom Taylor said, “We have seen strong growth in our commercial business over the last several years by providing a simplified, reliable and lower-cost solution for commercial projects that leverages our merchandise sourcing and supply chain infrastructure.” (See Floor & Decor stock analysis on TipRanks)

Taylor added, “The addressable commercial market is large at an estimated $13 billion, and we believe Spartan surfaces is the right strategic partner to enable us to incrementally accelerate our commercial flooring growth plans through their scalable specifying and consultative selling business model.”

Floor & Decor estimates the transaction to be accretive to its bottom line for Fiscal 2021 but does not expect it to have a material impact.

On May 7, Merrill Lynch analyst Elizabeth Lane Suzuki reiterated a Buy rating on the stock and increased the price target to $131 (30.1% upside potential) from $120.

In Q1, Floor & Decor recorded 31.1% growth in same-store sales which was higher than analysts’ estimates of 24.4%. Adjusted earnings per share of the company came in at $0.65 per share, ahead of the consensus estimates by $0.11.

Suzuki noted that the positive trajectory in comps continued from Q4 and Q3 after a contraction of 20.8% in Q2 2020 due to the pandemic. The analyst estimates a 55% comp growth for Q2 2021.

Consensus among analysts is that Floor & Decor is a Strong Buy based on 16 Buys and 1 Hold. The average analyst price target of $128.88 implies 28% upside potential to current levels. Shares have gained about 133% over the past year.

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