Berkshire Hathaway's Clayton Lands Central Florida's Highland Homes As Its 9th Crown Jewel

Berkshire Hathaway home construction juggernaut, Clayton Properties Group, has added a ninth gem to its growing trove of privately-operated site-build home builders, a Central Florida power player, Highland Homes.

The acquisition, effective May 2, also adds a 12th state to the site-built portfolio's ever-more-expansive operating footprint, coinciding with aggressive investment in factory facilities that will further bridge construction, distribution infrastructure, procurement, and site-assembly gap between the company's already vast manufactured housing empire and its energized charge into the stick-built/site build home building arena.

The deal to bring Highland Homes--started by Robert Adams and his son Joel in 1996--into the Clayton fold follows suit with eight prior M&a deals, beginning with the purchase in late 2015 of Atlanta-area operator Chafin Communities. Common denominators to all each transaction are alignment around business cultures that put customers and team members at the top of the priority pyramid, an assumption that current principals and staff will stay on board as leaders of their companies, a proven track record of having weathered the Great Recession housing downturn, and evidence of being able to serve entry-level buyers in the operating market area.

Highland Homes, which competes head-to-head with big, public builders in the Central Florida market, does as much as 50% of its business among entry-level buyers, and its disciplines, customer knowledge, and operational excellence at serving this segment stood out in its appeal to the Clayton executive team.

"From the time I started, more than 40 years ago in home building, first building Sun State Homes into one of Florida's leading private home building companies, and then starting Highland in 1996 with Joel, we've focused first and foremost on that entry level and first-time buyer," Highland ceo Bob Adams says. "We know those customers."

Mike Rutherford, president of Clayton Properties Group, which oversees the portfolio of site-build home building operators, observes, "Central Florida is about as competitive an entry level market as there can be. The area may not have been on our radar, except that Bob and Joel and their team have such strong programs and operational skills serving that marketplace in an incredibly competitive area."

Here's some background information from the Clayton press announcement:

Highland Homes was recognized as the sixth largest Tampa Bay home builder by Tampa Bay Business Journal in 2018. Additionally, the company was ranked as the 44th fastest growing, privately-owned company based in Tampa Bay in Tampa Bay Business Journal’s 2018 Fast 50 Awards. In 2017, the Tampa Bay Business Journal ranked Highland Homes the 57th largest, privately-held company headquartered in Tampa Bay in the Tampa Bay Business Journal’s Tampa Bay 200 List. In 2019, Highland Homes was ranked third by the Tampa Bay Business Journal in its Best Places to Work 2019 list.

The Clayton Properties Group market footprint now reaches Alabama, Colorado, Florida, Georgia, Indiana, Kansas, Missouri, North Carolina, South Carolina, Tennessee, Texas, and Utah. Clayton Properties Group is ranked 29 on the 2018 Builder Magazine’s Builder 100 list, and with the addition of Highland, is on pace to build over 7,000 homes by the end of 2019.

Highland Homes was advised by Zelman and Associates for the transaction.

Here are several key take-aways on the deal that speak to its impact and implications.

• With the addition of Florida and Highland Homes, Clayton's aggregate total volume may boost it to a top 10-ranked builder among the Builder 100 companies. Expectations, given an announcement last week that it would open a new panelization facility to serve Nashville-area builders, are that its stick- and site-build operators will avail of an ever-more-aggressive push to modernization that marries the best of offsite productivity and on-site design finish and quality, set apart in both price and product positioning.
• Highland's motivations as a seller reflect both late-cycle maneuvering on the part of an operator to secure patient capital--and keep growing--as well as an opportunity to retain cohesive control of a company with strong local and regional reputation and presence. "We explored capital options and we're very grateful and excited that Clayton gives us the chance to check all the boxes of our goals for continuity, an infusion of capital to grow, and the chance to try some new things," says Joel Adams, executive VP of the company.
• Word is that while Clayton is not hell-bent on further additions to the roll-up of private builders, its macro-mission and strategy, to "democratize" homeownership by making it more attainable to more working households could mean stars may align for other combinations in other markets as well.