An already robust mergers, acquisitions, and recapitalization season got another boost Monday, as PulteGroup announced it has acquired the real estate assetsof Dominion Homes from a group of hedge and private equity fund owners.
BUILDER's Les Shaver reports on favorable analyst response to the deal here, noting that Dominion's business, volume, community count, and margins would be accretive to earnings, with low-to-no goodwill and a footprint addition that makes sense amid continued challenges to volume growth in the current recovery.
Too, Columbus Business First's Brian Ball reports that former Pulte exec and current Dominion ceo Keith Tomlinsonasserts that, although it's an asset purchase, many of Dominion's associates will find jobs in Pulte's expanded Midwest North Region.
Here's a couple of comments on the deal that swirl around the issues of motivation, opportunity, and risk in a fits-and-starts recovery:
-- Pulte's opportunistic move in the central Ohio and Kentucky market is reminiscent of recent acquisitions by D.R. Horton that have prioritized market share as a motivation, a signal that operationally, big publics believe the time is nigh to push aggressively at share and volume rather than to focus on raising price to drive growth.
-- Pulte will more than likely rebrand Dominion communities according to its Centex-Pulte entry-level, move-up brand models, and gain operational efficiencies via floor-plan disciplines, and other headquarters-driven programming as it integrates Dominion assets into its system.
-- Lucky for Pulte, Dominion's brush with mortality in the latter part of the past decade, and its massive financial workout that turned its key debt-holders into equity shareholders, allowed it to write-down its land holdings values to such an extent that it's able to generate good margins on competitively-priced home sales. Getting rid of the legacy land issues gives the operation a competitive edge against players in the market like M/I Homes, Beazer, Drees Homes, Fischer and other national and regional players.
-- Dominion's timing is no surprise. It's major shareholders were ripe for an exit and playing for optimal timing. Only time will tell, but we anticipate that we'll soon see a deal for Orleans precipitated by the timing interests of its financial owners, just as we've seen a move by Salt Lake City-based Woodside to take itself public in the coming months.
-- We can guess that other interested parties here were NVR, Ryland, Horton, and perhaps Meritage, each of whom has focused on expanding footprint opportunity in markets whose economies have taken a turn for the better. No doubt, M&A season is only half-way done, and we're likely to see a flurry of acquisitions by big players seeking volume, community count, and a land pipeline.
The overarching take-away that we get from the deal is that market share, and a push for pace in the lower-price tiers are the macro themes of Pulte's acquisition of Dominion. To do well pushing pace, operations must be sure-footed, efficient, and underwritten at highly favorable lot-cost terms, which the Dominion assets provide. It's an interesting moment for the legendary Centex brand, whose luster a market that has up to now favored move-up and second-time-move up and luxury level activity has been mostly hidden. It may be coming out time for Centex.
Learn more about markets featured in this article: Salt Lake City, UT.