WHILE NEUMANN HOMES EXCEEDED $500 million in annual revenues for the first time in 2004, according to Kenneth P. Neumann, president and CEO, the company is just halfway “there.” Neumann's avowed goal has been to reach $1 billion in annual sales by the time he is 50 years old—some 24 months from now.
Acknowledging how daunting the vertical climb he has set for himself and his management team may be, Neumann clings tight to advice proffered to him by Ara K. Hovnanian: “The first $1 billion is the hardest.”
What Hovnanian is referring to, and what Neumann has worked hard to establish, is putting the systems in place to support the capacity to grow fast enough to survive and thrive as a big builder today. Warrenville, Ill.-based Neumann Homes, long seen as a leader in education, technology, and production systems, recently put a key piece of the growth puzzle into place—low-cost access to capital.
By establishing itself in the high-yield bond market, a rare step for private builders, Neumann Homes has access to the kind of war chest it will need to finance the acquisitions needed to reach its lofty sales goal. Working with GMAC Residential Funding Corp., Neumann Homes obtained access to capital through the high-yield bond market at what amounts to “a slightly higher rate than what a public company can obtain,” according to Neumann.
BASE CAMP Although this action is a critical element in the company's growth plan, it is only the most recent development. According to GMAC RFC managing director, Tadd Mac-Donnell, Neumann was able to obtain access to this capital market because of the base of people and systems it assembled to support an accelerated operational ascent.
“Neumann Homes is a significantly sized private builder, but entering this [high-yield bond] market is not just based on revenues. It includes how the product fits the market place and profitability, which is up with the best,” MacDonnell says. “Attention to detail is demonstrated throughout the company, even as there is growth, which is a big plus. One of the challenges private companies face is that reporting and communications become very difficult, especially as you grow into multiple markets.”
According to MacDonnell, Neumann Homes was able to access the high-yield bond market thanks, in part, to a well-evolved internal education program geared to train leaders in a tight human resource market, advanced use of business technology systems, and leading-edge production methodology. “Neumann Homes is at the forefront of creating systems prior to needing them. Many other builders are creating systems on the fly as they need them.”
FULLY EQUIPPED MacDonnell was referring to Neumann Homes' comprehensive in-house training that helps develop leaders to accommodate growth, its advanced approach to business technology to improve communication across disciplinary silos and geographies, and an extensive investment in process development.
Neumann Homes' advanced level of execution on these three fronts enabled the company to access the high-yield bond market, despite its size in business volume. Normally, MacDonnell says, revenue minimums to obtain this type of financing would be in the neighborhood of $650 million.