LGI Homes' executive team has taken to the road in an organized-chaos dash to raise commitments from institutional investor decision-makers to buy 9 million initial public offering shares of stock in the newly formed LGIH, to list on the Nasdaq Global Select Market.
The team, which has been putting the pieces for this moment together for well on to three years or more, would not be daunted by the midyear turn in housing momentum, largely tracing to the eventual withdrawal of Federal Reserve monetary accommodations that have help to keep mortgage interest rates at historical low points for much of recent memory. Nor would ceo Eric Lipar and his trusted executive team of chief financial officer Charles Merdian, president and coo Michael Snider, and Jack Lipar, evp and director of acquisitions, flinch at policy uncertainty, housing finance regulatory clouds, and questions over young buyers' access to mortgage credit.
The Securities and Exchange Commission documents filed yesterday note that LGI seeks to sell 9 million shares, at a proposed value of $13 to $15 each. Here's what the SEC form S-1 says about LGI's plans for use of the proceeds:
We expect to receive net proceeds from this offering of approximately $114.2 million (assuming an initial public offering price of $14.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus), after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
We expect to use $36.9 million of the net proceeds from this offering to make a payment to GTIS as the cash portion of the purchase price to acquire all of the joint venture interests of GTIS in the LGI/GTIS Joint Ventures which we do not own, and we expect to use the remainder of the net proceeds for working capital and for general corporate purposes, including the acquisition of land, development of lots and construction of homes.
Here's what to expect here later.
- A comparison of LGI's proposed per-share price with those of the other private home builders who've gone public this year. Here's what this looks like:
- Analysis of what this means in the ongoing public vs. private landscape of early new-home housing recovery
- More details on LGI's plans, expansion, business model validation
LGI's push for public equity highlights a growing disparity in access to land, development, and operational resources between publicly-traded and privately held companies. Through every cycle up to the present, private companies could leverage superior home buyer knowledge, land seller relationships, and a mosaic of lender and partner upside deals with trust and tenure at their core.
At the moment, however, after the deep and long downturn, sellers of land, of manufactured products, building materials, and labor services are chomping at the bit to get a move on, similar to the way that as many as 50% of home sales are all-cash deals. Rolling take-downs, deferred upside, and shared risk are less palatable options for land-holders, whose interests had been pent-up for so long in a low- to no-transaction market period.
At any rate, many headwinds buffeting housing right now--a growing monthly payment inelasticity among qualified buyers, extreme risk-aversion on the mortgage qualification front, fears of interest rate increases, anemic and geographically lumpy job and household formation patterns, and Millennial ambivalence about homeownership--favor public builders over privately-held companies.
This is because publics have war chests of patient cash, cash that can wait out urgencies and respond quickly to opportunities, cash that can work in a discerning, intentional fashion, with optionality rather than reflexiveness as the driver. Instead, a private builder must keep turning inventory, keep paying for their operations, and are much more constrained when it comes to acquiring and developing lots.
Private home builders that have become accustomed to dealing with developers, ranch owners, and other land sellers on a relationship basis may find that--like some home buyers who've been shut out of the running for resales by cash-paying investors--big publics brandishing quick-decision cash may upset that dynamic.
So even if the market makes a slow, painstaking improvement, the improvement may not come to private home builders.
This is why we'll likely see a flurry of strategic acquisition deals, publics buying privates. We've heard of at least a half-dozen in the pipeline.
(More later, please check back).