February 21 clocks-in typically as a dead-of-winter day in New York City. Never the conforming type, Manhattan dawned that day as an unseasonably mild Monday morning, smelling sweetly of Spring. By 7 a.m., Sheryl Palmer occupied an away-from-the-hubbub table set for breakfast at a midtown hotel restaurant. A bustle of clattering pots, cups, saucers, dishes of fresh fruit, and an aroma blend of bacon, cinnamon, and toasted bread signaled beginning of the week power breakfasts on steroids—what a quaint notion!
Anything can happen. In home building, like life, it does.
Taylor Morrison’s chairman and chief executive officer had flown in late, late the night before, from two time zones west, so 7 a.m. was like 4 a.m. Palmer’s antidote for three hour’s sleep, a nice cup of tea with some giddyap. If she felt tired or even a tad on edge about a board of directors meeting she’d host a couple of hours later that morning, glimmers of fatigue or angst were nowhere apparent.
“I’ll exercise later,” she said, a response to apologies she’d had to forego morning routines to make the breakfast meeting work.
This breakfast—an omelet and an oatmeal--was to be celebratory.
Jet-lag or no, it was a happy moment, we thought. We’d look back with pride and forward with good reason for barely-bridled excitement at 2020—and beyond, really. Expectations built on a rock solid foundation, track record and vision in sync. It was a moment to honor a leader, her brain trust of executives, and her team of 3,000 associates. Taylor Morrison, our Builder of the Year for 2020!
Then Vs. Now
An arc of strategic mission, of passion for people, of operational excellence, and of unswerving execution mapped back about eight years, to Taylor Morrison’s $722 million public coming out party on the New York Stock Exchange in 2013, coupled with the first of six acquisitions, the addition of Texas-based power brand, Darling Homes. The apogee, we’d figured, was 2019. Palmer and the Taylor Morrison enterprise had orchestrated a nearly magical fusion of capital in all of its forms—financial, talent, trust, real estate, and home building’s complex ecosystem of partners—into brilliant, big-shouldered crescendo of alignment. The accolade was hard-won and deserving.
This past January at the International Builders Show, Sheryl Palmer uttered the single word she couldn’t help but think of to express and encapsulate the grand design behind, and the underpinning support, for Taylor Morrison. A litany of M&A milestones, an ever-more intentional weighting of product segments, geography, price-points, production processes, rent-versus-own assortment, and, above all, a culture fanatically focused and energetically joined together on customer care and delight, etc. came down to this. She almost balked at saying it, simply because businesses don’t tend to make it part of Fortune 100 vernacular. Ultimately, she let it loose, out loud, in public, unrepentant, and as an essential and powerful oath of the Taylor Morrison “why.”
“We had to transform from obsessing about our own internal process to a focus on our love for our customer, a love for what we do as a team,” said Palmer that morning, not knowing then what she knows now. Not knowing how her words could and would come back and mean what they mean today. “At Taylor Morrison, the reason we are where we are is that we love what we do.”
That was then. Anything can happen. It has. Anything—incarnate as a global pandemic lethal novel coronavirus—did happen.
Little could we know, that spring-jacket morning, how instantaneously Taylor Morrison’s arc would vibrate with turbulence and bend. Little, too, could she and I have suspected how profoundly the company and its team members’ core objectives—to create paths to sustainable value for consumer households, business partners, and investors—could and would change. Nor was it evident at that instant how absolutely Sheryl Palmer’s qualities as a leader, her philosophies, and her behaviors, would be tested for all time ahead.
In the U.S., a breakneck swift, deep, clean, and inescapable gash now delineates the end of February from the beginning of March. Pre-Covid-19 versus post-Covid-19 are two entirely different lenses through which to look at businesses, the economy, consumers, and our society. And yet, at no time more than now does the home building business, the economy, consumers, and our communities need the very essence of what Sheryl Palmer, and every home building leader, offer. So much of what we all thought was critically important back in February no longer is right now. One thing is.
“The reason we are where we are is that we love what we do.” This is home building, by design. “What makes me proudest is that this is not just talk,” says Palmer. “We live this culture.”
The value-creation resources, capacities, business model assumptions, and a battery of external forces exerting their impact on a company, its stakeholders, and its leaders, post-Covid-19 are all 100% different from what they were before the pandemic. This story, this recognition of Taylor Morrison and its brain trust of corporate, regional, and divisional, and local leaders, and its ranks of thousands of associates, and their leader Sheryl Palmer is about something basic, something unchanging, something Covid-19 cannot kill.
“This core trust we’ve got here sparks a passion to do—at every level of the company—things we never might have imagined we could nor would do,” Palmer tells me over breakfast in late February. “If you’re focused on what we do, building communities for people to live in and become neighbors, and live their lives, it motivates and informs every part of the way we do our business.”
What Should Have Been
At BUILDER, pre-Covid, we had set out to spotlight the achievements of a company, an organization made up of many operational and investment systems, portfolio assets, and chains of expertise and implementation to ingest and activate six deals valued at upwards of $4 billion in eight years.
It was about priorities, strategic planning, and execution in an era of structural confidence. Post-Covid, we call attention to other sides of the same coin. Courage—which, as Franklin Delano Roosevelt remarked, allows some to see and act on what is more important than what makes us afraid—and culture. Courage, culture, trust, and “love for what we do”—the timeless byproducts of leadership and a committed, purpose-driven organization—make for a regenerative capacity to succeed, even with so challenging a prospect as now.
Priorities mapped for growth and priorities drawn for surviving, for rebuilding what crashes down, for regeneration may look different from one another. But, at the end of the day, they share DNA. So, to return to mid-town Manhattan, February 21, we could hardly have known how the same DNA Palmer spoke of then now applies to entirely different priorities, opportunity, and focus.
The pre-Covid moment could hardly have been more affirming, or promising. Dow Jones Industrial Averages settled slightly, off giddy, record highs in the upper 29,000s—a brash apex for an 11-year bull run--of a little over a week earlier. Taylor Morrison would notch its own heady 12-month peak market-open valuation of $28.8 per share in a matter of a couple of hours later that morning. Just two weeks prior, Palmer and her team closed on the $2.4 billion acquisition of William Lyon Homes—growing Taylor Morrison half-again in size in one fell swoop and securing a sturdy ranking among the nation’s top five home building enterprises.
Coupe De Spree
Demand fundamentals, job and wages growth, demographics, educational attainment, and homeownership life-stage trends all pointed to structural growth in 2020. The Taylor Morrison-William Lyon combination felt to be the right fit at the right time for a company that had been growing fast with six meaningful acquisitions since its record-breaking IPO in 2013, an ever more fluent practitioner in the art and science of integration, right through its purchase of AV Homes in 2018.
"This checks all the boxes, taking us into new markets, complementing what we're offering and adding land and community pipeline in markets we're in, and giving us greater exposure to the entry-level buyer," said Palmer at the time of the deal announcement. "Where we felt the urgency, and where this combination felt so right, was that we now are strong top 5 players in Southern California and Northern California markets, and Denver, where we've been short on land inventory, and we're entering the Pacific Northwest just as the market has moved off its peak pricing. We're now in the right place, at the right time for the right price."
Pro forma-ed to reflect the combined businesses, an integrated William Lyon increased Taylor Morrison's heft by about 50%, with increased exposure to entry-level buyers up from about 28% to 36%, and when you add in first-time move-up buyers, it's a full three-quarters of the product and pricing offerings of the combined company.
"For us to make a bet of this nature on an organization that makes us 50% bigger the day we close than we were, we couldn't be any happier or more honored that it's a company and a family whose name means so much in home building," Palmer added at the time. Between the lines and behind the scenes, publicly available documents would show that the William Lyon courtship was easier said than done. The genesis of conversations between the two firms dates back—officially speaking—to the end of May 2018, amidst tire-kicking shows of interest in William Lyon Homes from at least one other private equity capital investor and one potential strategic public home builder.
“Yes, May 30, 2019, I floated the idea of a conversation about our two companies with Matt [Zaist, William Lyon Homes president and CEO], and that came out of years of crossing paths, that grew into trusted relationship with both Matt and Bill [William H. Lyon, who served as executive chairman and chairman of the William Lyon Homes board and controlled, directly and indirectly through the other Lyon Stockholders, approximately 42.7% of the voting power of the outstanding shares of William Lyon Homes common stock].
All the summer of 2019—through June, July, August, and into September and October—negotiations between the two enterprises continued, with occasional noise and distraction spikes coming in from outside interests who knew Lyon was on the block. The boards of both companies worked on full-alert, engaged in ensuring the best interests of their respective shareholders, as deal structure, timing, valuation, and go-forward management and organizational outlines traded back and forth, and due diligence, exclusive negotiation windows, and confidentiality agreements kicked into place. As October wound down, negotiations reached a final leg of the deal conversation, a quick back-and-forth on terms. Proxy materials read that on November 5, the merger agreement finalized:
“The William Lyon Homes Board, following deliberations with management and its advisors, and in light of the reasons considered, unanimously (i) determined that the transactions contemplated by the merger agreement, including the merger, are advisable, fair and in the best interests of William Lyon Homes’ stockholders, (ii) approved, adopted and declared advisable the merger agreement and the transactions contemplated thereby, (iii) authorized the execution, delivery and performance thereof, and (iv) resolved to recommend that the William Lyon Homes stockholders approve the merger agreement.”
Preparing For The Known, And Unknown
The work that Palmer, acquisitions and integration management office chief Lou Steffens, and the entire brain trust did, from the pre-announcement, and pre-closing to Taylor Morrison’s “Day 1 Celebration,” now serves as the fast-integrating operation’s central nervous system for pandemic management.
“We set up systems to communicate, to focus on execution and change and operational excellence, but also to get out in front of all the emotional and morale issues that go along with a big corporate merger,” said Palmer, back in late February, before the pandemic tsunami crashed these shores. Today, those systems, those weekly video town hall meetings with the whole enterprise together on one call, that attention to detail for every team member serve as a vital resource of support, of empowerment for each associate at a moment of profound confusion and fear.
The strategic “wins” of the past 18 months--as Taylor Morrison raced to be both the leading home builder its customers aspire to come to and an enterprise its shareholders can count on for sustainable value creation—shine no less brightly for the fact of Covid’s sudden, bewildering impact.
- It completed integration of its late-2018 acquisition of AV Homes, fueling a new engine of opportunity versus the surging entry-level market.
- It completed a strategic agreement to supply real estate and production capacity to single-family-built-for-rent community developer Christopher Todd Communities, rationalizing a brand new, innovative strategic model for home builder SFR ventures.
- Finally, the strategic master-stroke, the acquisition of William Lyon Homes further expanded the Taylor Morrison footprint, giving the enterprise even greater strength consistent with its customer segmentation focus, adding purchasing and local land intel clout, and marrying with another powerful brand in customer trust, credibility, and quality.
A Team By Design
At the same time, Taylor Morrison’s Sheryl Palmer—and her brain trust: Steffens; Dave Cone, EVP and chief financial officer; Eric Heuser, EVP and chief strategy officer; Tawn Kelley, EVP and President, Mortgage Operations; Darrell Sherman, EVP, chief legal officer; Graham Hughes, chief customer officer; Bob Witte, VP and chief information officer, and Stephanie McCarty, chief communications officer--have committed at least equal energies, focus, and fanaticism on transforming the very meaning, essence, and model of what a big home building company should be.
The results of this work are evident and profound:
- Taylor Morrison, now for five years running, has been recognized as America’s most-trusted home builder.
- Taylor Morrison, this year, has joined an elite few, among Fortune’s “most admired” companies.
- Taylor Morrison also has shot up the charts among companies talented business people “most want to work for.”
This is not to mention, a bold, game-changing position Sheryl Palmer has taken on building a business culture around behaviors—not just rhetoric—that speak to equitable opportunity for talented and committed people, irrespective of gender, race, ethnicity, creed, etc., in both the ranks of team member associates, leadership, and board representation.
“How I think about Taylor Morrison, today, tomorrow, is that I actually pull back a bit,” says Palmer, in the post-Covid reality that plunged all leaders into more questions than answers. “To some extent, we’re going through the kind of trauma none of us would want practice in dealing with. For some of it, our instincts kick in, and for parts of what’s happening, we have to keep those instincts in check, and simply listen and learn.”
What Palmer, her brain trust of headquarters, regional, and divisional leaders, and the sprawling network of thousands of associates now celebrate is one essential, baseline characteristic: shared purpose.