US-based home improvement retailer Lowe’s has signed a definitive agreement to sell its Canadian retail business to private equity firm Sycamore Partners.

Sycamore Partners will acquire the business for $400m in cash and a performance-based deferred consideration.

Based in Boucherville, Quebec, Lowe’s Canadian retail business operates a network of around 450 corporates and independent affiliate dealer stores.

These stores trade under different banners, including RONA, Lowe’s Canada, Réno-Dépôt and Dick’s Lumber.

The deal is expected to close early next year subject to customary closing conditions being met and regulatory approvals being given.

Lowe’s expects a pre-tax non-cash impairment charge of around $2bn related to its Canadian retail business.

The business represents around 7% of Lowe’s consolidated full-year sales outlook for fiscal 2022 (FY22), as well as nearly 60 basis points of dilution on its FY22 full-year operating margin outlook.

Lowe’s chairman, president and CEO Marvin Ellison said: “The sale of our Canadian retail business is an important step toward simplifying the Lowe’s business model.

“We remain confident in our short and long-term outlook for the US business, underscored by improved sales trends and strong profit flow-through in the third quarter, as well as our expectations for solid business performance for the remainder of 2022.

“I want to thank our entire Canadian team for their hard work and dedication to our customers. We look forward to working with Sycamore Partners in executing a seamless transition.”

Sycamore Partners managing director Stefan Kaluzny said: “We are honoured to partner with Lowe’s to establish Lowe’s Canada and RONA as a standalone company headquartered in Boucherville, Quebec.

“We look forward to working with the company’s management team to build on its 83-year history as a leading Canadian home improvement business serving families, builders, and contractors in their communities across the country.”

Goldman Sachs & Co acted as financial adviser to Lowe’s during the transaction.