The 2020 mergers and acquisition season in home building is off with a big bang.
Osaka, Japan-based Daiwa House has entered an agreement to purchase a 60% stake in San Ramon, Calif.-based developer-builder Trumark Companies, the number 85-ranked U.S. home builder according to our 2019 Builder 100.
The deal--extraordinary in its own right as an acquisition of a deep land and development pipeline in one of the nation's hottest, most profitable, most land-constrained residential markets--has macro implications. These include:
- Precisely matching new land investment with still-robust demand and economic vibrancy will be a key go-forward necessity for stronger multiregional home building and development enterprises. This is the case despite decidely mixed- and risk-prone economic signals. Why this matters is that the trigger-point motivations for both M&A buyers and sellers are more pronounced as the strong "pickings" in each market stand out, and the weaker ones lose optionality as the submarket land-rush stakes get higher.
- Japan-based Daiwa House, Sumitomo, and Sekisui House--along with a couple of additional firms who've made inroads with private home builder acquisitions--have now each established expanding multi-regional, bi-coastal beachheads. Having secured land pipelines in each case, and a solid, on-the-ground land-acquisition and operational talent infrastructure, the next logical step will be to see an intensifying of construction process, product development, and business and management cultural transformations begin to play out over the near-term.
- Daiwa House itself, on a mission to become a $3.6 billion-a-year home builder (from non-Japan-based operations in the U.S., Australia, and Asia) would catapult into the top 20 Builder 100 rankings if its master-plan of acquisition and organic growth plays out as intended.
Let's look for a moment into the details of the Daiwa House-Trumark deal. Here's the press statement issued by Trumark last evening, after employees celebrated their new ownership and capital infusion:
SAN RAMON, Calif. – Jan. 16, 2020 – Trumark Companies, a nationally award-winning California developer and homebuilder, today announced it has entered into an agreement with Daiwa House USA Inc., a wholly owned subsidiary of Japan-based Daiwa House Industry Co., Ltd. (OTCMKTS: DWAHF), where Daiwa House USA will acquire 60% of the equity interest in Trumark and will commit to make additional capital contributions as funding to further develop Trumark’s business. Under the new agreement Trumark’s co-founding principals, Michael Maples and Gregg Nelson, retain their current roles as part owners and will lead the company as co-CEOs.
“Our new status with Daiwa House is a massive boost to Trumark’s business and positions us for exponential growth,” said Maples. “Together we’ve created a powerful engine for expansion by combining the operating expertise of the Trumark Companies' teams with financial resources equal to the largest homebuilders in the nation.”
As a developer and homebuilder historically focused on California, Trumark has developed more than 8,000 residential lots in the state since its founding in 1988. Trumark and Daiwa House are aligned in the pursuit of growth through Trumark's home-building, master-planned communities, age-qualified, urban, commercial and mixed-use divisions. The new structure with Daiwa House enables Trumark to pursue growth initiatives beyond California in other Western submarkets and expand its internal team and leadership within the homebuilding industry.
“We have enjoyed working with Daiwa House to solidify an agreement that mutually benefits both of our firms,” said Nelson. “Our core values are aligned in that Trumark and Daiwa House are both committed to building homes that enhance people’s lives. With this new structure in place, Trumark can more effectively pursue land deals in our target markets and streamline the transaction process, enhancing our competitive position.”
The terms of the ownership transaction are undisclosed. Daiwa House Industry Co., Ltd. is Japan’s largest homebuilder and one of the world’s largest public companies. Daiwa House USA is pursuing a strategic initiative to expand the company’s business in North America, which began through a joint venture agreement with Lincoln Property Group in 2014 and the acquisition of Stanley Martin, an east coast homebuilding company, in 2017.
“Our firm recognizes California as an important market as a part of our North American growth strategy,” said Nobuya Ichiki, president at Daiwa House USA. “Development in this state can be challenging and we look forward to working with Trumark and leveraging its track record and unique ability to navigate the complexities of development to achieve our expansion objectives.”
We'll have more here as we spend time over the next day or so reaching key executives involved in the deal.