We talked with an institutional investor representative who claimed that Weyerhaeuser received 50 bids for its five home building companies before ultimately choosing last week to ink a complex Reverse Morris Trust agreement with TRI Pointe Homes for $2.7 billion for the 27,000 lots in five new-home hotbed markets.
Among the bidders reported to have reached the final short-list for Weyerhaeuser's quintet of operators were Beazer Homes, Brookfield Residential Properties, and Meritage Homes. Too, in the final running for Shapell Industries' 5,200 California prime lots for $1.6 billion were, again, Brookfield and Standard Pacific, both companies with operations concentrated in California. We also heard that Taylor Morrison at least took a hard look at both properties before bowing out.
Clearly, what the jockeying and cross-checking for position suggests in markets that are relatively strong against a backdrop of lumpy, choppy, and iffy markets is that much is in play.
The losers in this case are formidable home building operators, Beazer, Brookfield, Meritage, and Standard Pacific, and there's no reason to think that, now that they've cranked up their mergers and acquisitions machinery, they're likely to graciously shut it all down now that deals have been struck for the two large prizes.
As a matter of fact, we've heard it on fairly good authority among institutional investors that another large M&A deal may come sooner than later, and it would not be a surprise to hear that one of the pursuers in the Weyerhaeuser and Shapell sweepstakes may wind up as a target for a mega builder on the hunt for land positions that jive with where the action is--among move-up and second-time move-up and semi-custom communities where there's constrained lot inventory and strong, organic jobs activity, i.e. Northern California, the Northwest, the Carolinas, the D.C. area, Houston, Georgia, to a lesser extent.
We're aware that there are at least a half dozen deals for acquisitions on the boards for the next several weeks to a couple of months. But it also would not come as a tremendous surprise, particularly while the equity and debt windows seem still to be open for home building operators and the borrowing environment at that level is felicitous, to hear of a "go big or go home" deal consolidating a couple of the public home building companies.
Among the forces and factors that would be in the way, it seems that egos remain the dominant impediment to doing deals that make sense from a capacity rationalization standpoint. Loading goodwill on to a balance sheet is another, more legitimate barrier, but strategic advantages to public builder combinations can outnumber some of the accounting and financial headaches.
Among the ones we've named above, combinations could accomplish several clear goals:
* Scale overheads better at the corporate level
* Achieve operational efficiencies in markets where there are duplicate divisions
* Take out a competitor--for land, customers, and labor--in such markets
* Gain a better foothold in move-up and second-time move up design programs for builders whose product lines and land positions give them too much exposure to entry-level, first-time buyers
* From a broader perspective, swap out less desirable lots for more desirable ones that can be monetized sooner
Will a deal happen? We don't know, but acquisitions pursuers have been known to inadvertently put themselves in play on occasion. And as "early recovery" seems to have hunkered down for a siege, it has more clearly accentuated the program and land position types that are going to win versus the ones that won't.
Learn more about markets featured in this article: Houston, TX.