AS WE GO TO PRESS WITH THE AUGUST issue of BIG BUILDER, we hear of yet another big acquisition deal in the offing, possibly ready for announcement even before the time you receive your copy of the magazine. This one involves one of the nation's fastest growing private home builders during the past three years, based principally in what continues to be one of our most hyperbolic markets. If nothing else, 2005's mergers and acquisitions activity has begun to define the contour and magnitude of a “next level” to which the largest home building enterprises are willing to go. It's an endgame many say is inevitable, but none—even those who might know—will say precisely when.
Press releases will continue to tout “the biggest” acquisition deal yet, but everyone knows there's bigger ones out there that likely will be done, probably within two years. As Hovnanian Enterprises' and Technical Olympic USA's recent deals show, the stakes are higher, and the strategic plays are ever more aggressive. Private equity players like The Blackstone Group figure in the evolving mix of financial allies as the relentless drive for opportunity and capacity wind around one another like helices. Notably, the big deals now serve as pre-indicators of the way an acquiring company views its strategic vulnerability today—geography, talent, product—versus a completed picture of what that company will be.
For insiders at the company that's going to be acquired by one of the nation's big public home builders in the next week or two, the feelings are mixed. Realistically, they come around to thinking it's probably for the greater good that their operation will—overnight—have access to previously undreamt of resources. It's business, after all, and they're as aware as anyone that a company's culture doesn't exist in a vacuum, but in a supply and demand marketplace. Imagine, though, the spreading twinge of regret—something like sellers' remorse—that leaders of highly entrepreneurial private companies feel as they face the moment of decision that the time to sell has come.
“I wish we could have gone on as a private, but in this kind of environment selling is probably better for the company as a whole,” says an executive with knowledge of the imminent deal. It's probably a common sentiment at many levels of this person's organization, and many other organizations that are getting calls from representatives of big companies with big appetites.
Integration issues, exit strategies, go-forward action plans, and legal and financial encumbrances suddenly take the highest priority as the transaction plays out, when weeks earlier, the entire orbit of the company seemed to be around making customers happy. Temporarily, anyway, that focus seems to get lost as deal details abound.
Clearly, if you're running a private company—whether you intend to sell or not—it's wise to add to great people, your great product, and your great customer satisfaction numbers. The last thing you'd want is for some unforeseen legal or financial technicality to interfere with the already difficult moment of resolution about your company's future.
Contributing editor John Caulfield's article, “Captive Crossfire,” on page 38 reports not only on the status of regulatory probes into the nature of some relationships between builders and title insurers, but also on builders' increased susceptibility to being used as a bully pulpit for over-zealous politically motivated ideologues. As Caulfield reports, the rules on captive title insurance arrangements are vague, and states' laws sometimes conflict with national guidelines. In this case, erring on the side of safety might be the wiser course, at least until there's consensus on the law and its interpretation.
Home building's business trajectory is a geography lesson. Unlike autos, technology, food, and even financial services, houses are local products with local valuations, and building them is a local business. So, with “Some Like it Hot” on page 56, we begin a series of closer looks at local markets and what makes them tick. We figured we'd start by looking at one that's been tough on big builders—at least from a market share perspective—and Hot 'Lanta fits that bill.