When John Laing Homes CEO Larry Webb landed in the United Arab Emirates late on Feb. 14—Valentine's Day—business, not love, was on his mind. But Webb keeps his business close to his heart. So, after roughly three days of scoping out the head honchos at Emaar Properties, he was smitten with the $1.05 billion merger deal that would bring Laing into the welcoming fold of the global real estate developer. Call it a match made in Dubai.
Webb says the decision to sell was effectuated by a synch-up in corporate philosophies, especially in terms of customer care. True, but cold, hard dollars-and-cents benefits exist for both.
Emaar gains a solid position in the U.S. housing market as owner of the nation's 34th largest builder. The purchase diversifies its business by widening its geographic position outside the Middle East, North Africa, and India, and adding a complement to its commercial and tower arms.
In return, Laing will get the wings it needs to fly—capital. With deeper pockets, Laing's operations in parts of Arizona, California, and Colorado will no longer be the three legs holding up the stool. With its sights set on Florida, Texas, and the Carolinas, management will begin executing its expansion plan come fall.
“[Emaar] think[s] we can grow to five times our current size in five years and would like [for] us to be the largest privately held home builder in the U.S.,” Webb says. “I don't know about that, but I do agree with them that we are only limited by how good we are.”
Grand plans not withstanding, it all began as a defensive play. Since 2001, Residential Funding Corp., a unit of General Motors (GM) subsidiary General Motors Acceptance Corp. (GMAC), had a 56 percent ownership stake in Laing. But late last year, the floundering U.S. auto industry forced GM to divest of GMAC, selling it off to hedge fund Cerberus Capital Management. A spin-off seemed imminent, so Webb felt the time was right for the company to choose its own destiny rather than have one handed to it, especially by a big public builder.
Laing's acquisition very likely foreshadows more deals to come. In a recent report, UBS analyst Margaret Whelan says the deal is indicative of a capital crunch: “We expect this [capital constraint] should contribute to an accelerating pace of consolidation among public builders.”
And more foreign deals are likely, says Whelan, noting that the trend was alive in 2002, when Greece-based Technical Olympic Corp. acquired and merged Engle Holding Corp. and Newmark Homes Corp., to form Technical Olympic USA. To the extent that foreign capital comes in at a higher value than the U.S. dollar, there will be continued foreign investment in the industry, she says. “That's why we saw Technical Olympic come in, and that's why we're seeing Emaar come in now.”