White Knight Scenario Case Study: GMS Inc. Acquisition
July 9, 2025
In June 2025, GMS Inc., a leading North American distributor of specialty building products, became the focal point of a high-profile acquisition battle between two strategic suitors QXO Inc. and The Home Depot. This case presents a classic white knight scenario, where GMS ultimately chose to be acquired by The Home Depot’s subsidiary, SRS Distribution, in response to an unsolicited offer from QXO.
What is a White Knight?
A white knight in financial terms refers to a situation where a friendly investor or company acquires a target company that is facing a hostile takeover attempt. The white knight is seen as a preferable alternative to the hostile bidder because they are more likely to preserve the company’s existing management, culture, and strategic direction.
Background on GMS Inc.
Founded in 1971, Gypsum Management & Supply (GMS) had built a strong reputation as a building materials supplier. The company had a network of over 320 distribution centers and nearly 100 tool service locations across the U.S. and Canada. GMS’s product portfolio, including wallboard, ceilings, steel framing, and complementary materials, positioned it as a key supplier to both residential and commercial contractors. However, amid a challenging macroeconomic environment and recent financial underperformance, GMS became an attractive target for strategic acquirers. The stock price had declined 14% YTD prior to any offer being made.
QXO’s Proposal
QXO Inc., a major player in the building products distribution industry, formally proposed to acquire GMS on June 18, 2025, offering $95.20 per share in an all-cash transaction. QXO had just completed an $11bn acquisition of Beacon Roofing Supply and was seeking further acquisitional growth.
This offer valued GMS at approximately $5 billion and represented a 27% premium over GMS’s 60-day volume-weighted average price. QXO’s rationale was based on an ambitious strategy to consolidate the North American building products distribution market. Management saw an opportunity to acquire GMS as it was underperforming relative to its potential.
QXO’s proposal was accompanied by a detailed critique of GMS’s financial performance where it laid out its own investment thesis and highlighted the perceived business deterioration at GMS.
In its analysis, QXO admired the product portfolio but then swiftly pointed out that over the previous three years, GMS’s EBITDA had declined at an annual rate of 4%, while peers experienced growth of +4.6%. Its EBITDA margin had dropped by 315 basis points (worse than peers), and the company had consistently missed analysts’ earnings estimates. QXO argued that GMS’s share price had suffered as a result, underperforming the S&P 500 by nearly 1,900 basis points over the past year. The offer was positioned as a lifeline to shareholders, providing immediate and certain value amid deteriorating fundamentals.
QXO also emphasized its readiness to close the deal quickly, citing committed financing from Goldman Sachs and Morgan Stanley, and a lack of anticipated regulatory hurdles. The company noted that GMS had released an optimistic outlook for financial performance (despite ongoing weak market conditions) while simultaneously marketing the company for sale through advisors J.P. Morgan and Jefferies.
Read the full press release detailing QXO’s bid for GMS in the free downloads section.
QXO made its offer on June 18, 2025, the day of GMS’ FY24 earnings release. GMS acknowledged receiving the unsolicited offer the following day but made no further comment. Soon after the offer there were reports that Home Depot was also planning to bid for GMS.
Home Depot’s Countermove and Strategic Fit
On June 30, 2025, GMS announced it had entered into a definitive agreement to be acquired by SRS Distribution, a subsidiary of The Home Depot. The deal offered $110 per share in cash, valuing GMS at approximately $5.5 billion in enterprise value. This represented a 36% premium to GMS’s unaffected share price as of June 18, significantly outbidding QXO’s offer.
The Home Depot’s acquisition of GMS was a strategic extension of its 2024 acquisition of SRS, which had already positioned the company as a leading specialty trade distributor. GMS’s portfolio of wallboard, ceilings, steel framing, and complementary products was seen as a good fit with SRS’s existing verticals in roofing, landscaping, and pool supplies. The combined entity would become a leading home improvement retailer. It would operate in over 1,200 locations and deploy a fleet of more than 8,000 trucks, enhancing service capabilities for professional contractors across North America.
The transaction was expected to be accretive to The Home Depot’s adjusted EPS in the first year post-closing, excluding synergies. The deal was to be funded through a mix of cash on hand and debt, with no anticipated impact on The Home Depot’s leverage targets.
GMS’s Decision and Strategic Rationale
GMS’s board, led by Chair John J. Gavin, evaluated both offers and concluded that the Home Depot-SRS proposal was in the best interest of shareholders and stakeholders. The board cited the higher valuation, strategic alignment, and long-term growth potential as key factors.
CEO John C. Turner Jr. and the senior leadership team were retained to continue leading GMS within the SRS organization, ensuring continuity and integration.
Source: The Home Depot Enters Into Agreement for SRS Distribution to Acquire GMS.pdf (free download)
The decision to accept The Home Depot’s offer over QXO’s unsolicited bid was also influenced by the broader strategic vision. While QXO presented a compelling financial case, its critique of GMS’s performance and aggressive tone may have undermined its appeal. In contrast, The Home Depot offered a collaborative integration path, emphasizing shared values, operational synergies, and a platform for accelerated growth.
GMS’s Official Response
GMS Inc.’s official response to the acquisition agreement with The Home Depot (through its subsidiary SRS Distribution) reflects a strong endorsement of the transaction’s strategic and financial merits. CEO John C. Turner Jr. emphasized the alignment of the deal with GMS’s long-standing commitment to customer service and operational excellence, highlighting the expanded product and service offerings that will benefit professional contractor customers. He expressed confidence that joining forces with SRS and Home Depot would accelerate GMS’s growth and enhance value for all stakeholders.
Chair John J. Gavin echoed this sentiment, noting that the board, after evaluating multiple opportunities, determined that the Home Depot proposal offered the most compelling outcome for shareholders, employees, and partners. The leadership team’s continued role post-acquisition underscores a commitment to continuity and integration, while the transaction’s 36% premium to GMS’s unaffected share price signals strong financial value for investors.
Source: GMS Enters Into Agreement With The Home Depot.pdf (free download)
GMS had found a buyer willing to pay a significant premium to the stock price and had agreed to work alongside the existing management team on a new shared growth plan.
Read the full press release announcing the acquisition by The Home Depot in the free downloads section.
Conclusion
This case demonstrates the dynamics of a white knight acquisition, where a target company facing an unsolicited bid opts for a more favorable strategic partner. GMS’s choice to align with The Home Depot over QXO highlights the importance of not only valuation but also cultural fit, strategic vision, and execution certainty in M&A decisions.
The transaction underscores the intensifying competition in the building products distribution sector and the strategic maneuvers companies employ to secure market leadership. One thing to note is that QXO did not raise its offer for GMS and preferred instead to seek alternative acquisitions elsewhere.