• Clayton Properties Group will announce today the purchase of home building operator, Birmingham, Ala.-based Harris Doyle Homes.
  • The Clayton acquisition is the fifth site-build company added to the nation's largest manufactured home builder, whose market share is 50% of the category, which accounts for seven in 10 homes priced below $150,000.
  • Clayton's Harris Doyle announcement follows last week's closing of a deal to purchase Oakwood Homes, the Colorado-Utah home builder known as one of the most technologically progressed large enterprises.
  • Also emerging in the portfolio of home building company acquisitions are synergies with other Berkshire Hathaway units, MiTek, Johns Manville, Benjamin Moore & Co., Acme Brick, and Lubrizol.

Here's the story:

In his 2017 letter to shareholders of Berkshire Hathaway, ceo Warren Buffett gave a shout-out to Berkshire's Maryville, Tenn.-based Clayton Homes group and the fact that it had closed on its first three "site-built" home building operators by the end of 2016.

"More will come," Buffett promised. "Site-built houses are expected to amount to 3% or so of Clayton’s unit sales in 2017 and will likely deliver about 14% of its dollar volume."

Here's a hint of what the Oracle of Omaha was talking about.

After making a huge splash early last week, closing on the purchase of Colorado-Utah innovative home builder Oakwood Homes, Clayton Properties Group's acquisition juggernaut continued through the week, heading back to Birmingham, Ala., regarded these days as a well-kept secret gem of a market off that's becoming less of a secret.

Russ Doyle (left) and Brooks Harris, founder-principals in Harris Doyle Homes, become part of a growing site-builder empire within Berkshire Hathaway's Clayton Properties Group.
Russ Doyle (left) and Brooks Harris, founder-principals in Harris Doyle Homes, become part of a growing site-builder empire within Berkshire Hathaway's Clayton Properties Group.

The transaction this time involves a smallish production builder currently selling nine communities in two markets--Birmingham and Montgomery--but seen by Clayton as having energy, ambition, and opportunity to grow with the "rocket-fuel" of capital it will provide. The seller, Harris Doyle Homes, is led by two 30-something second-generation builders, Brooks Harris and Russ Doyle, each of whom had started and run separate home building operations before they merged in 2008 to form Harris Doyle. Harris Doyle Homes closed 139 homes in 2016, according to co-founder and chief development officer Brooks Harris, and is on pace to do the same in 2017.

Now, the Clayton Properties Group, with five separate site-build operators under its growing tent, must start to take a different shape in observers' minds, both as a mergers and acquisitions player and as a new hybrid-style competitor aiming at the lower 25% of new homes' pricing spectrum and seeking economies of rapidly increasing scale.

For Keith Holdbrooks, president of Clayton's home building operations and Mike Rutherford, president of the Clayton properties group, the two executives whose mission from ceo Kevin Clayton has been to find both new land assets and a fresh infusion of operational capability to create a new beachhead in a largely unmet market of new homes between the prices, say, of $150,000 and $225,000, the process of adding site-build operators to its manufactured home empire has been exhilarating.

"We're having fun," said Holdbrooks, in a conversation we had Friday afternoon about the Harris Doyle purchase. "When you get to meet young, energetic, highly-talented operators like Brooks [Harris] and Russ [Doyle] and see what their team is doing down there, it's exciting for us to welcome them into the fold."

Holdbrooks and Rutherford--introduced by Zelman & Associates' head of investment banking Anthony McGill in Zelman's role as the seller's exclusive financial advisor--Harris and Doyle early this past January in Orlando, were struck immediately by two key traits in their first-impression conversations. It helped, of course, that Keith Holdbrooks was a Birmingham boy growing up, and that another key player in the conversations, Clayton's Tom Walsh, had spend time in the Birmingham market as an operator.

"Again, it's the culture that comes through," said Rutherford. "The way their customer centricity and their team-member experience focus blend is what we're looking for in these conversations. Brooks and Russ have it. They're young; they want to continue to growth their business; and they want to do it for their team, not just for themselves; and they see the opportunity to do that with [Clayton] as a capital resource they might not have had otherwise. Also, the energy both Brooks and Russ have, and the way that energizes their entire young team, is infectious."

Harris Doyle's Brooks Harris recalls that he experienced something similar during the initial introduction in Orlando and subsequent meetings with Holdbrooks and Rutherford.

"We were not initially looking to sell when Tony [McGill of Zelman] put us together for breakfast with Keith and Mike," said Harris. "When we sat down with them and began to get an understanding of what Clayton was putting together, and got the clear message that we'd have both autonomy to run our business and Berkshire Hathaway capital resources to grow it, we left [Orlando] really excited."

In the months that intervened, and as conversations grew more earnest, Harris' partner Russ Doyle got an unusual opportunity to expand his due diligence process before they decided to go ahead with selling their enterprise to Clayton. It happened that Harris Doyle was working on a tech management systems cutover from its prior software enterprise system to BuilderMT, whose MiTek parent also happens to be a Berkshire Hathaway unit. BuilderMT representatives working with Doyle on the migration effort suggested that he visit in Nashville, Tenn., with Bob Goodall, who'd implemented a similar IT-back office migration to BuilderMT earlier.

The same Bob Goodall had been one of the first three site-build operator principals to sell to Clayton, so the software system migration conversation quite naturally blossomed into a full-on discussion of what it was like to be an acquiree of Clayton Properties.

"The BuilderMT visit to Goodall Homes in Nashville gave Russ an opportunity to ask a few pointed questions about selling to Clayton," said Harris. "Bob [Goodall], from that point forward took an interest in us and has been a wonderful resource ever since, even going so far as to coming to Birmingham to meet with our team here to add assurances as to the positive opportunity they'll get from this deal."

Here's the Clayton statement of background on the transaction due this morning:

Former competitors Brooks Harris, co-owner and chief business development officer, and Russ Doyle, co-owner, president and chief operating officer, merged their individual homebuilding operations in 2008 to create one of Birmingham, Ala.’s largest homebuilders, Harris Doyle Homes.

“We are proud to welcome Harris Doyle to our family of homebuilders,” said Keith Holdbrooks, president of Clayton home building group. “We were immediately impressed with Brooks’ and Russ’ abilities to combine their unique experiences and expertise into making Harris Doyle Homes the successful, customer-focused company it is today. We look forward to partnering with them to enhance our customers’ homebuying experiences while providing affordable, innovative homes.”

Harris Doyle Homes differentiates itself by providing unique architecture and creative interior designs to the Birmingham, Auburn and Pike Road, Ala., markets. “We are truly grateful to have the opportunity to partner with Clayton Properties Group,” said Harris. “It has been clear from the beginning that this acquisition will provide our team with extraordinary opportunities and resources to grow our business, top notch leadership training for our team and a corporate culture and drive to create a truly unparalleled customer experience.”

Harris Doyle Homes is widely recognized for its energized and progressive team that works diligently to provide a high level of service to its customers. The homebuilder designs and constructs new homes and neighborhoods that fit the unique lifestyles of its diverse customer base.

“Our success thus far widely has been attributed to our reliable reputation and commitment to building quality homes with an emphasis on customization and design,” said Doyle. “Our partnership with Clayton will position us to expand our capabilities further into current and new markets. It also allows us to retain our management team while providing our team members with the resources and leadership opportunities they need to advance their careers.”

So, now Clayton's site-build footprint includes five operators, whose principals Holdbrooks and Rutherford now regard as key trusted advisors--as Rutherford puts it--"we continue to make acquisitions going foward."

What's interesting here is to see synergies begin to emerge among Berkshire's varying operational units, Clayton and MiTek--not to mention Lubrizol, Acme Brick, Johns Manville, Benjamin Moore & Co., and a host of home insurance and financial services units--as supportive to the Berkshire Hathaway plan for domination in home construction products, services, and now community development.

So, as Mr. Buffett stated above, "more will come."

For Brooks Harris and Russ Doyle, the stakes are now looking profoundly different, and much better in a market known, among other things, for strong school systems.

"We had been looking to sustain our volume of about 140 homes a year because Russ and I didn't want to double down on our financial risk, and, in a sense that created a glass ceiling effect of upside for our employees" said Harris. "Now, it's almost like we've got the best of both worlds--autonomy and capital--and, now I anticipate that we're going to double in volume in the next three years."

You got to hold on, for more will come. Believe it.