When Bill Lyon, CEO of William Lyon Homes was going through the IPO process last year, he decided that when it came time to expand, he wanted to avoid tertiary areas of the Western markets he was already in.

Consider it a lesson learned from the last cycle for the Newport Beach, Calif.,-based builder, which declared for bankruptcy in 2011.

“We got into more tertiary markets,” Lyon says. “That, in hindsight, wasn't the right decision.”

Originally, the company executed that “go-to-new-markets” strategy when it bought Village Homes in Denver in 2012. But last week, it pulled into two high-barrier-to-entry markets in Portland and Seattle with the purchase of Polygon Northwest, the second largest builder in each of these markets. Polygon had 11 percent market share in the two markets with a total revenue of $260.9 million, and an average sales price of $378,143.

“We feel like, by adding the Denver market in late 2012 and now Seattle and Portland, we’ll be in a position to exceed what we did during the last cycle and hopefully be a little more diversified and a little more efficient in the process,” Lyon says.

Polygon’s housing type fit William Lyon, as did its reputation, track record, and inventory. About 30 percent of William Lyon’s customers are first-time buyers and approximately 70 percent are move-up. Polygon is 37 percent first-time and 63 percent move-up.

Polygon did have a multifamily and commercial business that will be left behind under their corporate team, including CEO Jeff Gow and a number of other key leaders. The Polygon homebuilding group will operate as two new divisions of William Lyon Homes under the Polygon name. One will be in Washington with a core market of Seattle, and the other will be in Oregon with a core market of Portland.

Derek Straight, president of Polygon’s Washington operations, and Fred Gast, president of Polygon’s Oregon operations, will continue to run their respective divisions as division presidents of William Lyon. They will report to Matthew R. Zaist, president and COO of William Lyon.

“I don’t know if we could have found a better opportunity as far as an acquisition, based on their reputation, track record, and inventory,” Lyon says. “Village was a similar situation. There was a great team there with a long-standing brand name in that market and it came available through a process. It was a market we kept our eye on. Culturally, the fit was good there.”

Heavy Price
There have been whispers that William Lyon’s $520 million pricetag for Polygon may have been an overpay.

Overall the acquisition increases Lyon’s supply of owned and controlled lots by approximately 30 percent, adding more than 4,200 lots in two land-constrained markets with significant barriers to entry. Polygon is expected to deliver 850 to 900 homes and generate at least $300 million of revenue in 2014, according to William Lyon. In 2015, those numbers should jump to 1,100 to 1,200 deliveries and at least $450 to $500 million in revenue.

Lyon says the company has learned from past lessons.

“It’s very important to us, particularly with the turmoil we’ve been through, that we really plan for the long haul,” he says. “We don’t want to go through it again. We’re proud of the fact that we were able to continue as long as we did without a restructure and position the company to grow with recovery.”

In the last few years, the new leadership team at William Lyon has refinanced all of the company’s debt into more palatable long-term structures. The company is currently evaluating a host of long-term options for how it will finance the Polygon deal.

“As part of this acquisition, there’s a cash flow that’s very beneficial to the company,” Lyon says. “There would have been a price that we would have not proceeded with transaction. We really loved the real estate and team and felt like it was a good fit. But ultimately it had to make sense financially and we feel it does for us. We’re very aware of our recent past.That’s not lost on us.”

As it focused on incorporating Polygon’s platform, Lyon says his company isn't actively searching for any more acquisitions, though he wouldn't totally shut the door, saying “You never say never about anything.

“But as a regional, there are not too many other markets than could more attractive than the places where we’re already active,” he says.

Learn more about markets featured in this article: Seattle, WA.