Home building's 2017 mergers and acquisitions games begin. Sumitomo Forestry, which kicked 2016 m&a into gear with the January deal for 60% ownership of mid-Atlantic regional power Dan Ryan Builders, does the honors once again. This time, Sumitomo--on a mission to become a 5,000 home-a-year American builder--plans to land 70% of Salt Lake City-area's meteorically-growing Edge Homes for upwards of $70 million, in a deal expected to close any day.
The transaction involves a transfer of shares from a private equity investor in Edge to Edge Utah HoldCo, LLD, which Sumitomo will roll up as a unit of its SFC American group.
Sumitomo Forestry's regional quilt-work of operators strengthens its geographical presence in the Southwest, emerging into a footprint and model faintly reminiscent of the Weyerhaeuser Real Estate group of six home home builders that TRI Pointe Group bought for $2.8 billion in mid-2014. Including Edge Homes, Sumitomo will have operations now in 10 states, with closings totaling in the 4,000-plus range across the 5 operators.
Sumitomo, in each of its majority-equity position purchases, has selected operators with headroom to grow in their respective markets and best-of-breed management/principal owners who may want one more blast of the cycle to drive their company to a "next level" before a graceful exit and a well-telegraphed succession plan. In each case, a capital infusion gives private builders a land acquisition and development cash trove equivalent to public home builder coffers in those respective markets. The difference being that these privately-held operators often hold an advantage over the publics in their local intel, relationships, and the speed with which they can pull the trigger on a land deal.
The Sumitomo 5-jewel patchwork quilt now includes its original Northwest beachhead Henley USA (Seattle, and Texas), Texas operators Bloomfield Homes Group (Dallas), Gehan Homes (Austin, Dallas, Houston, San Antonio, and Phoenix), and MainVue Homes, as well as DRB, whose mid-Atlantic footprint extends from Pennsylvania to the Carolinas.
One can only surmise that--just as Weyerhaeuser's six-company portfolio included Pardee Homes--Sumitomo may be continuing to scout the West Coast for a suitable candidate that would further fill in the geographical puzzle.
Edge Homes this time last year ranked No. 54 on the Builder 100, generating 2015 revenue of $239 million on closings of 741 homes. It should be noted that a year earlier, based on 2014 metrics, Edge ranked 81, on 485 deliveries and total sales of $158 million. So, it nearly doubled in size in 12 months between 2014 and 2015.
Our Local Leaders lists Salt Lake as the No. 36-largest home building market, with Edge as the No. 3 builder in the Salt Lake market, trailing only Ivory Homes and D.R. Horton, with 2015 market share of 6.4%.
According to 4th quarter 2016 data from BUILDER sibling company Metrostudy, Edge moved into the No. 2 spot among Salt Lake-area builders, with 717 closings, a 7.3% market share. Metrostudy analysis from regional director Eric Allen after the second quarter of 2016 characterized Salt Lake as a strong and growing-stronger market. Allen wrote:
“The Greater Salt Lake market has experienced very rapid growth the first half of 2016, and despite the global and national pressures, the market remains healthy,” said Allen. “While we are anticipating production in the second half of the year to level off (to some extent), the market will have the strongest year since prior to the recession and should exceed 10,000 annual starts.”
Metrostudy noted in its 4th quarter market report that the market recorded 9,798 closings for 2016, and notched 10,778 annual starts and 9,360 new lot deliveries.