This was going to be a year when--after a public-to-public mega merger and a couple of dozen good-sized acquisitions, mostly publics buying local or regional powers--things were supposedly going to notch back a bit on the m&a front in 2016.
From what we're hearing, however, January won't end before at least two more closing announcements finish two more deals in the mid-Atlantic to Southeast corridor.
We'll get back to broader expectations for the year in m&a in a moment.
Let's look for a moment, first, at the Taylor Morrison-Acadia deal, which is the second Taylor-Morrison inroads into Atlanta. Last May, Taylor Morrison anted up a reported $65 million for entry-level home builder JEH. Paired up, the unit volume for JEH and Acadia would move Taylor Morrison from the No. 11 spot for Atlanta's marketshare to No. 6, with a through-Q3 closings tally of north of 525 closings. Here, from BUILDER sibling company Metrostudy's regional director for Atlanta Eugene James, is the new "local leaders" line-up, reflecting a couple of recent combinations among the leaders:
A bit of back-story here is both material and interesting. Atlanta, many will remember had been the headquarters of Morrison Homes prior to its July 2007 acquisition and combination with Taylor Woodrow. So, the last year has been a kind of full-circle moment for Taylor Morrison, which has re-established a beachhead where it had exited in haste as the market imploded nine years ago. Interestingly, Gregg Goldenberg, a principal in Acadia, who'll reportedly remain on board with the Taylor-Morrison on an "earnout agreement and continue to source land for the company," had spent 10 years moving up the executive ranks at Morrison Homes in an earlier incarnation.
So, now Taylor Morrison has an entry-level position in the Atlanta market and a move-up and second-time move-up player with the new combination, a fully-locked-and-loaded multi-segment, multi-pricepoint portfolio in the market.
Atlanta, from a new residential development and construction standpoint, has regained its nickname "Hot 'lanta." Fundamentals in jobs and household formations are strong and picking up strength, particularly in contrast with some of the more oil and energy-dependent local boom economies in Texas and Colorado. What's more, the headroom between current starts and permits levels and those of the prior peak is plentiful.
So, it's no surprise that Atlanta has become a veritable "hive" of acquisitions activity and consolidation discussion. According to Metrostudy's Eugene James, "the top 10 builder market share has increased from 42% of all new homes closed up to 45% of the market [in the past 12 months]. In 2009 the top 10 had a 22% market share of all new homes closed. Here's a reminder of the deals we've covered over the past 18 months or so:
- D.R. Horton buys Crown Communities
- Century Buys Peachtree
- Taylor Morrison buys JEH
- Meritage acquires Legendary Communities
- Pulte Buys John Wieland Homes
- Plus, Clayton Homes (Warren Buffet's company) bought manufactured housing local power Chafin Communities
What's clear is that Atlanta has resurrected from its post-recessionary torpor and has emerged as a fully-diversified, multi-segment, multi-price point scalable marketplace, where almost four out of five new homes was developed and built by a non-top 10 builder prior to the downturn.
This market is in contrast, not only to places whose run-up has been fueled by single industry sectors, such as energy or technology, but also differs from Sun Belt economics that depend more on retiring or near-retirement migration as a significant contributor to its demand pipeline. Atlanta is diverse. Its jobs growth is well-dispersed across industries; and its economic recovery has been steady.
In addition to the volume opportunity across several price points, home builders can model multi-product type and operational processes in a relatively high-pace environment, looking to port some of the better practices and talent into other--smaller--markets whose economics spring from a diverse base of industry sectors.
Now, let's get back to one of the big take-aways that jumps out as we see both the Dan Ryan Builders and Acadia deals come through last week. It's called motivation.
For private builders who've been successful at driving value into their hard-won business plans over the three or four years since the end of the worst of the Great Recession, now marks a reckoning moment.
Many private home builders have to be looking at the stretch ahead and wondering, "are my assets going to be worth more 12 months from now, or 24 months from now, or less?"
Even though 2016 will be a good year on a national scale for housing's primary data benchmarks--starts, permits, and new home sales--the market feels as if it's in an inflection point. Private home builders--who have to struggle at a more intensive level for capital to keep their machines fed and their balance sheets healthy--may be motivated over the next few months to "monitize" their assets while the market appears to be getting a bit hotter and heavier, since now just may be the moment their most expensive and most valuable holdings--their land--is as valuable as it may be for a while.
In Atlanta, now that John Wieland and Acadia are off the table, attention turns to overachievers Smith Douglas, Wilson Parker Homes, and Rocklyn Homes. You can bet there's a lot of interest, particularly among players like a certain newly combined mega-merger entity, and other publics who want that Atlanta operating sphere to model their operations in other markets as well.