Taylor Morrison's biggest moment so far is today, as it comes to Wall Street with a bid to raise upwards of $500 million in public equity capital via its Initial Public Offering.
What's not a question right now is the likelihood of the success of Taylor Morrison's IPO raise. Investor appetite for home building is voracious. Both the debt and equity market windows for housing organizations are wide open. Recovery is in the air, and the sentiment is that it's that early-innings moment that can make people fortunes riding the run-up.
What is a question: Who's next? How many more will Wall Street get behind? If you can go public, should you? BUILDER PULSE takes an opinionated look at 10 private companies' odds of entering the public domain, where capital abounds with many strings attached.
Taylor Morrison has been putting its place in order for three years now in preparation for this moment, having reorganized, leaned-down its operations, re-rationalized its land-holdings, recapitalized following its spin-off from U.K.-based Wimpey, as Oaktree Capital Management [Oaktree is major shareholder of BUILDER PULSE parent company Hanley Wood] and TPG Capital--which stand to triple the value of their stake with today's raise of as much as $523 million--bought-out the company and got behind ceo Sheryl Palmer and her strategic team.
But Taylor Morrison's IPO bid, and a number of other companies who are queuing up to go before investors in the days, weeks, and months ahead, changed about six weeks ago. Something changed when the team led by Doug Bauer at TRI Pointe Homes, with Starwood Capital honcho Barry Sternlicht's arm around their shoulder fired the first shot at going public, raising $233 million.
The game changed.
Private companies, whose capital base may be private investors, private equity partners, project-level loans, and revolving debt via syndicates, may need a quantum leap capital access platform to play the game competitively during the early stages of a housing recovery. Witness, late last week, San Jose-based United Community Partners filed SEC documents to raise $125 millionvia an IPO. UCP in 2012 generated $58 million in revenue on sales of 41 homes and 560 lots.
For private home building operators, the motivation is obvious. To feed their machine, to grow, to survive, to thrive, they need land. At present, there's a scarcity of both land and lots, which jacks up prices and pressures home building margins.
So, even companies that pride themselves on having steeped their company cultures in entrepreneurial spirit, low-overhead no-bureaucracy decision chains, and customer-centricity are getting tempted by the siren song of abundant capital supply that would fuel their ability to snatch lots that match up to their community design programs and skill-sets.
"There's no way you can escape considering filing [to go public] right now," one such veteran tells BUILDER PULSE. "We won't be able to compete in some of the prime arenas we need to in the next few years without that kind of capital available to us."
As for investors, and the fee-harvesting investment banks who bring these companies to the dance, its home-builder-palooza time. "They're convinced it's the early innings, and that they're buying low, and are going to sell high," says a financial services senior management source. "They're 25 years old, cocky, and they don't know shit about housing cycles."
BUILDER PULSE goes out on a limb and names you 10 companies that have to be among those whose dramas may play out on Wall Street in the next stretch of time, not necessarily because they felt a need to go public a year ago, but because the opportunity may be unique right now.
Many of these companies, and many of the financial services partners who are part of the equity, debt, and lending narrative that's pumping resources into home building's arterial network as we speak will be with us at the Housing Leadership Summit, May 13-15, in Scottsdale.
For the moment, we'll leave it at giving each company an "odds" designation, and one brief note. Over the next few days, we'll drill into the strategies of each company and consider the pluses and minuses of a near-term public offering.
LGI Homes: strong odds; may be a timing issue
Orleans: strong odds; may not have a strong enough story for Wall Street right now
WCI: strong odds; good candidate for near-term action in light of recent velocity, a successful land-legacy reset and early-recovery traction
Stanley Martin: strong odds favoring; a regional power player whose moment to enter more markets may have come
The New Home Company: strong odds favoring; competitive land DNA and type-A culture of opportunism suggests this one will be in the crop we'll be hearing from soon
William Lyon: strong odds favoring; private equity sponsors, strong land position and debt levels make a bid for public equity make sense right now. UPDATE: William Lyon filed today.
Woodside Homes: moderate odds; strategically, the company may need to evolve farther before its eventual IPO moment
Highland Homes: weak odds; a highly independent family-run company whose motivations may or may not include access to public equity's double-edged sword
Ashton Woods Homes: moderate odds; an archetypal operator that would benefit from public equity, yet its majority owners, investors, may not choose this route so soon after accessing the high-yield debt markets
Shea Homes: weak odds; Shea needs to be mentioned, but the family-run parent group, and current diverse access to capital may be inhibitors to taking on the time and energy cost of going public