M&A Outlook for 2024
The M&A market for U.S. homebuilders and construction companies has never been stronger.
The universe of buyers and investors is larger than ever, attracted by the scale of the U.S. housing market and a sustained demand outlook for years to come. These investors offer a variety of capital solutions and partnership structures that crystallize value for private owners while enabling management teams to achieve their growth ambitions. Many private operators are now considering a transaction due to capital becoming more scarce, increasingly stiff competition from larger players, and attractive valuations available from buyers. This has resulted in historic deal activity.
As a trusted advisor to founders and owners of housing companies, we leverage our M&A expertise and deep industry knowledge to guide you and your team in a potential transaction. We have closed over 30 transactions in the last five years, earning our reputation as ‘the Closer’. We welcome a confidential conversation to discuss your Company’s strategy and capital needs.
Industry volatility in recent years has restricted M&A, resulting in substantial pent-up demand. In the past four years, housing demand stalled at the outset of the pandemic and then surged to unsustainable levels, followed by supply chain disruptions, and interest rates spiking thereafter. With interest rate relief very likely in 2024, industry conditions have largely settled with years of steady demand ahead. M&A requires this market certainty to flourish.
Buyers are cash-rich and hungry for growth. Large public homebuilders, growing regional builders, overseas real estate companies, private equity firms, family offices, and SFR REITS are all eager to partner with and/or acquire U.S. housing companies. Large strategic players are mandated to grow and are seeking to acquire the necessary land, personnel, and geographic markets to hit their targets through M&A. After years of strong housing demand and historically high margins, these buyers have capital available to deploy.
Asian real estate companies are gaining traction and driving M&A competition. These companies are increasingly looking to the U.S. for growth as they face deteriorating demographics at home. Foreign buyers have completed 35+ housing acquisitions in the last decade, the great majority of which involved Japanese companies. These buyers are well-capitalized and have proven themselves to be strong partners, resulting in direct competition for the public builders and an attractive option for sellers.
It was never easy for independent homebuilders, but it’s now increasingly challenging. Recent volatility has been extremely stressful for private builders. The heavy swings in demand and supply chain dynamics are not only challenging to plan around, but also negatively impact liquidity and balance sheet strength. Furthermore, because of distress in other real estate industries, banks have withdrawn capital commitments to healthy homebuilders and land developers. Larger players are leveraging their less expensive capital to acquire increasingly scarce land, undercutting smaller builders.
“Win-win” partnerships are available. These challenges have driven many private builders to consider selling a portion or all of their business; to reduce personal risk, get access to more liquidity, and be part of a bigger organization. Buyers often favor acquiring an established builder in a high-growth market over starting a greenfield operation, seeking the right fit with a seller that has deep local expertise, a reliable lot pipeline, and a strong team that will stay with the company in a labor constrained market. These advantages allow them to achieve quicker profitability and avoid paying any “dumb tax”.
Did we mention valuation $$$? Given the record number of buyers competing for transactions, premium valuations are being paid. This is especially true for top operators in high-growth markets. In fact, private builder sales are often closing at valuations higher than public builder multiples, despite the sellers being smaller and less liquid.
Transactions must be approached strategically and with great care. Specific goals include maintaining confidentiality, protecting competitive information, finding the right cultural fit, and maximizing value. From start to finish, it takes approximately six months to close and fund a private builder sale. Basic tools required to consummate a successful transaction include reviewed or audited financials, a strong CFO or finance professional to produce a multi-year growth model, commitment to the process, and an experienced transaction attorney who will focus on getting to the closing table.
Whelan Advisory’s Recent M&A Deals
Margaret’s Recent Interview with Zonda
In a recent "Inspirational Leadership with the Best in Home Building" podcast episode, host Mollie Carmichael of Zonda interviewed Margaret Whelan, Founder and CEO of Whelan Advisory Capital Markets.
