In 2002, Fred Delibero launched Summit Custom Homes in Kansas City with one overarching goal.
“When I started this company my goal was to create what I call a legacy company—a company that survives me and my involvement in the company. In doing so, we built one of the top 200 builders in the country with 54 employees and approaching $200 million in sales.”
Delibero built a company that, since 2013, has been the No. 1 builder in the market. Last year, it closed 243 homes.
But creating a legacy company requires more than just present-day success. It means building a firm that will thrive into the future. With this week’s announcement that Clayton Properties, the site-built division of the Berkshire Hathaway subsidiary Clayton home building group, has acquired all of the operating assets of Summit, which includes approximately 1,200 lots in the Kansas City metropolitan area, Delibero has taken a major step toward achieving that goal.
“This has given us a vehicle to take that to the next step,” Delibero says. “Besides reducing the financial burdens that I have [personal guarantees], it keeps the legacy team in place, the leadership in place, and then provides us the capital to continue to grow the name and brand.”
Two Years Later
In 2012, Delibero emerged from the downturn with what he calls a “merchant-build” strategy, where he bought every lot that he built upon. By 2016, 75% of the homes he sold were built on lots that Summit developed.
Knowing that his company would be developing more of its own lots and needed dry powder in the capital intensive business (and that he wanted to create a legacy company), he first took Summit to market in 2014 though David Rosen with Long Grove Capital. While he talked to potential suitors then, there wasn’t a fit.
“We wanted [to sell to] a company that shares our values,” Delibero says. “Last year, we were rated one of the best places to work in the city. We have a value that’s employee focused, customer focused, and community focused in terms of giving back. Those things all had to be there. They weren’t negotiable in terms of who we ended up with. In some ways, that’s why we didn’t end up selling in 2014—because we couldn’t check all of those boxes.”
One of those boxes was keeping the management team in place. “They [Clayton] said, ‘Fred, run your company the way you run your company. Do what you do and what’s made you so successful. We’re not going to change the name. We’re not going to change the team. We’re not going to put somebody else in there to run it for you,’” Delibero says.
Delibero had pulled Summit off the market in 2014 when his agreement with Rosen had expired. But Rosen learned that Clayton Homes was looking for M&A opportunities and he thought Summit would be a good fit, according to Delibero.
Then things just came together. While Delibero wasn’t seeking a buyer, 2016 suddenly became the right time to make a deal.
“Certainly for me personally, it was the right timing. You want to sell your company in a good market, not in a bad market,” he says. “I had to step back and look at it as an owner. I think we have another three to four good years in this cycle. So, is now the right time? It really came down to what was right for us and the partnership. If it wasn’t the right deal, we wouldn’t have done it.”
And even if now may not be the perfect time in the cycle, there’s a much greater penalty for seller too late rather than too soon. “I certainly know a lot of guys who didn’t do a deal at the right time [10 years ago] and we know how that turned out,” Delibero says.
Getting an injection of capital at this point in the cycle gives Summit a major boost. “We were at a stage in our progression where we had opportunities to grow but a limited amount of capital,” Delibero says. “I knew that we needed to find a marriage that worked to bring equity and capital into the company.”
If that hadn’t happened, Summit would have survived. But it would be difficult to see it grow at the rate that Delibero wanted.
“It would have a number of years of building the war chest to grow,” Delibero says. “At the end of a couple of years, that war chest is good but you might lose it again in a downturn. This allows us to take advantage of a strong economic market and continue to grow right away.”
In fact, it could be fuel for growth into new paces. Delibero says he’s evaluating six or seven markets right now.
“We’d like to expand regionally,” Delibero says. “This will help us accelerate that. We think there are opportunities to double our size in the market from 243 closings to the neighborhood of 500 by the end of 2018.”
Along with the typical advantages of building more homes—better buying power and economies of scale in places like marketing and operations—Summit’s executives also gain a valuable resource.
“The single source of capital [from Clayton] gives our executives more time to build the business instead of focusing on bringing in capital,” Delibero says.
Summit is the third builder that Warren Buffet-backed Clayton has bought in exactly 12 months. Last November, it secured Atlanta’s Chafin Communities and in late April it bought Goodall Homes. The Clayton home building group recently sold its 500th site built home this past month, clearly has a template for the builders that it purchases.
The management teams of both Chafin and Goodall remained in place and Goodall President Bob Goodall Jr. said the two company’s cultures were consistent, according to Nashville’s The Tennessean newspaper.
While the builders will be integrated in Clayton’s site-built business, Delibero said he could potentially see some “interesting synergies” with the Maryville, Tenn.-based company’s manufactured homes division. While those are questions for the future, there’s little doubt that today Clayton wants to grow and, backed by Berkshire, it will be a stronger competitor for builders in any market that it wants to move into.
“As we expand our site-built operations, acquiring companies like Summit Custom Homes, which is a leader in its market, is a crucial part of our strategy,” Keith Holdbrooks, president of Clayton home building group, said in a press release announcing the deal.