Home builders' full embrace of precision manufacturing, almost zero waste, speed, and cost predictability that only factory technologies can provide has reached a new high-water mark.
This morning, PulteGroup announced it has acquired Jacksonville, Fla.-based ICG for an undisclosed sum. PulteGroup notes that ICG will remain a stand-alone operation, continuing to serve its current book of client business, which means PulteGroup now is in the business of providing offsite enclosure solutions to other single- and multifamily builders.
Two big-time take-ways, highlighed in PulteGroup's 4th Quarter 2019 earnings call this morning by PulteGroup president and ceo Ryan Marshall:
One, the ICG acquisition--while it will immediately impact construction capacity, quality, completion cycles, and other operational improvements--has a built-in "next step" aspect. ICG's current solutions--framing, roof-trusses, floor-systems, etc.--are already fast-evolving to where pre-installed window systems, mechanicals, electric, plumbing, HVAC, etc. are in a near-future time-horizon for the Jacksonville plant. Two, while PulteGroup chose in this case to vertically integrate the ICG plant because of dynamics, opportunities, and specifics of the North Florida market, at least two other variations on the off-site factory cut-over may play out in the next several years for Pulte. It may, in some markets, avail as a customer of already-available offsite construction manufacturing plants, such as Entekra in Northern California, and others in other markets. Too, it may use the ICG plant, its operational model, and its business model as a template to start up its own vertically integrated plants where it has community count concentration in other parts of the country.
"We're looking to move as much of our production as we can into automated plants," Marshall told analysts and investors in today's earnings call. "We'll use other factories where we have an opportunity, and we'll discover from the talented team and operations at ICG how to stand up our own factories where it benefits us to do so."
Here's the high-level from this morning's press statement:
PulteGroup, Inc. (NYSE: PHM) announced today that it has acquired Innovative Construction Group (ICG), a leading off-site solutions provider focused on single family and multifamily wood framed construction. Based in Jacksonville, Florida, ICG’s comprehensive framing solutions include design services, manufactured wall panels, roof trusses and floor systems, and on-site installation to provide a full frame shell construction process. ICG will remain a stand-alone operation and continue serving its existing customer base and builder clients.
The acquisition of ICG builds on PulteGroup’s unique commonly managed plan platform and its long-term strategy to drive greater production efficiency and overall build quality. Off-site solutions can deliver high quality framing components with less waste and help address trade labor shortages that are a persistent problem for the construction industry.
“We are extremely impressed with ICG’s management team and automated plant operations, and look forward to working with the company’s founders, who will continue to lead the organization,” said Ryan Marshall, President and CEO of PulteGroup. “As we capitalize on ICG’s existing products and services, we expect to expand the factory’s production capabilities to provide additional products and services to ICG’s customers.”
“In acquiring ICG, we see the potential for our Jacksonville operations to benefit through faster cycle times, precision structural components and savings on lumber and other materials,” added Marshall. “ICG can also serve as a model to intelligently integrate the use of off-site production with our existing trade partners.”
“Over the last decade, we have continuously developed and refined our fully integrated off-site model to service single family and multifamily customers,” said Ryan Melin, co-Founder and President of ICG. “We are excited to partner with PulteGroup and leverage our shared passion for innovation to offer a broader range of services and capabilities to all of our customers.”
Whelan Advisory acted as the exclusive advisor to Innovative Construction Group.
When we caught up last with ICG co-founder and president Ryan Melin, it was mid-year of last year. Here's a bit of what we learned about him and the operation he built to the point where he expected to deliver walls, flooring, roofing, and integrated structural components for the equivalent of about 1,700 single-family and multifamily units in 2019.
"Most builders are really good at recognizing their direct costs, managing their intricate relation to one another, and making smart moves to optimize those resources," says Melin, who started ICG 10 years ago after several years as a regional executive at Stock Building Supply in the Southeast, giving him an immersive lesson in the supply chain and procurement disciplines. "It's when you start adding up the impact of indirects--dumpster pulls, for instance, more efficient design and engineering processes, and the cost of project supervisors and costs involved in inspections, and the back-office costs of having 50 different purchase orders to process and run through accounts payable from buying separate materials and products versus one lump-sum guaranteed amount to cover structure, engineering, installation, service, and inspections as part of the offering.
"We have to be more efficient every step of the way to deliver the financial value to the builders and developers," adds Melin, whose focus has been on single-family, but whose business is pivoting to include multifamily in the North Florida and north markets, because they can "ship up to 4 hours" efficiently when it comes to multifamily. "We have to outservice our competition. We're held to some high expectations.
Melin says that after one test-run with a multifamily developer in North Florida, that same developer captured the metrics and quantified its gains through the pilot project, and has now leaned into offsite for its "reliability" and "predictability," at a moment those benefits are hard to come by elsewhere.
