Josh Moulton built his first house at age 21, and--with his older brother Seth and several family members around and behind him--co-founded his first company, Des Moines-based Classic Homes, in 2006, on the eve of housing's catastrophic meltdown. They built 10 homes in 2007.
Now, at the ripe old age of 35--having survived and thrived through last decade's darkest moments, Josh Moulton and his family have completed a first big mergers and acquisitions deal, turning ownership of their 12-year-old market-leading firm to D.R. Horton, which is vying for rights to a crown its enterprise leaders prize, that of America's No. 1 builder.
The homebuilding assets acquired include approximately 670 lots, 130 homes in inventory and 40 homes in sales order backlog. D.R. Horton also acquired control of approximately 550 lots through option contracts. For the twelve months ended October 31, 2018, Classic closed 238 homes ($75 million in revenue) with an average home size of approximately 1,650 square feet and an average sales price of $317,000. D.R. Horton expects to pay approximately $60 million in cash for the purchase, and Classic will operate as a separate division within D.R. Horton.
For the Moultons, the deal gives them a dashboard for growth and a smooth, steady lifeline to capital to work calmly through any rough-going financial stresses that may lie ahead, as the housing market flirts with uncertainty and the United States' broader economy signals strengthening odds of a turn downward.
They get to reduce their personal financial risk profile--having a deep-pocketed parent take on the role of capital investment manager--as they continue to leverage a customer-care and scaled-personalization strategy for an even stronger leadership position in the Des Moines market.
For D.R. Horton, the purchase reflects intensifying focus on geographical footprint and exposure to entry-level and lower-price tier customer segments, two areas Horton excels in as part of its longstanding DNA.
As headwinds, mixed-signals, and lack of clarity start to impact an all-important catalyst of fundamental demand--namely, consumer confidence--D.R. Horton steers in its own pathway to sustaining performance as rival big builders try to get out of their own ways.
Meaning, D.R. Horton has--since before, during, and since the Great Recession--focused on both the land strategy and operational discipline to thrive where many competitors would not. Now, as the herd of high-volume players focuses on integrating, ingesting, and operationalizing their relatively recent inroads to entry-level customer exposure, D.R. Horton can scoot nimbly ahead by de-emphasizing its geographic market exposure to California and other bubbly coastal markets. In the Horton announcement, Chairman Donald R. Horton's comment focuses on the business fit and the geography.
“We are pleased to have Classic Builders join the D.R. Horton family. Their experienced, dedicated team and well-established building operations make Classic a great addition as we continue to expand our footprint in the Midwest.”
The Classic purchase is Horton's second Midwestern states acquisition in as many weeks.
D.R. Horton's acquisition announcement this week of Indianapolis and Fort Wayne, Indiana, and Columbus, Ohio home building operator Westport Homes for $190 million is telling, for both a firm culturally drawn to being known as America's No. 1 home builder, and for the home building, new residential development, and investment community as a whole.
Frothy pricing, intensely challenged new-home supply, climbing mortgage interest rates, reduced owner tax advantages, and sky-rocketing costs are sucking the oxygen out of the formerly red-hot coastal markets. Here, Trulia senior economist Cheryl Young, affirms analysis that America's flyover country may be where housing has its last best chance to hold its ground and eke out another recovery year ahead.
Keen-eyed readers will notice a few things in common amongst the 2019 stars on this list. It does include a couple well-known growth areas including Phoenix, Ariz., and Austin, Texas. But it also highlights markets relatively close to more-expensive metros, but far enough away to offer their own attractions and opportunities without many of the mounting affordability concerns that mark those marquee names. Think Colorado Springs instead of Denver, and Bakersfield and Fresno instead of Los Angeles and the Bay Area.
Key to these deals and this new geography of heightened housing activity for the buyer is D.R. Horton's almost unequaled professional discipline--velocity, decisiveness, efficacy--in integrating operations, securing a go-forward plan, and achieving overhead expense reduction in one fell swoop post transaction.
What's more, the Horton team's commitment to process--from land strategy, to customer conversion, to construction operations, and community management--allows Horton to mine veins of prosperity in second- and third-tier local economies, where most other builders would founder.
Where this is all going over the next few years--especially if the current new-home sales sneeze turns into housing recovery's pneumonia--is that less-bubble prone flyover state markets may prove to be more and more attractive to new home development and construction, especially as builders add a "smarter construction" dimension to their pursuit of productivity gains.
We see the likes of Horton, Lennar, Clayton, and Japanese-owned Sumitomo Forestry Group and Sekisui House portfolios amassing greater scale, more pronounced leverage on operational efficiency, more intimate connection with customers, and greater resilience as cycles rise and fall in the future of housing.
Meanwhile, Horton's bread-and-butter Breakbasket States cycle-fighter plan is in full flower.