Whelan & Dealin’ – M&A Market Update for Homebuilders
We eagerly anticipate the release of Zonda’s annual Builder 100 and Local Leader data each spring. The trends are insightful and underscore our view that M&A activity will continue at a feverish pace. Large builders and Asian Buyers are driving this activity, seeking scale advantages and additional market share gains.
Below are the key M&A Market takeaways from our Founder & CEO, Margaret Whelan:
In my 30 years working on Wall Street, I've never seen a more dynamic and active M&A environment for homebuilders.
There are more buyers, from more places, with more cash, than at any other time. We recently attended the John Burns Summit, and in a poll of attendees, twice as many executives said they would buy versus sell a company today.
The top 10 builders are closing nearly 300k homes a year and need over 1 million lots to sustain that growth.
Large builders are focused on growing by increasing their geographic footprint, product offerings, and price points. We estimate that up to 70% of their historical unit growth is a result of acquisitions, and we expect this trend to persist.
They are leveraging market share positions and scale to deliver near-record margins, which is driving significant cash flow generation and providing the liquidity to fuel acquisitive growth.
Our private midsized builder friends are asking, “Margaret, should I jump or wait to get pushed?” What’s really fascinating about the current dynamic is that it is still a seller’s market!
Given the number of buyers, private homebuilders are selling for historically high multiples, up to and above 2x Book Value. This is a 40+% premium to the ~1.4x book value public peers have traded at on average over the past 10 years, despite privates being smaller and less liquid.
View Margaret’s M&A State of Play Presentation from this year’s Builder 100 Conference
Below are some specific data points our team found insightful following our review of Zonda’s 2023 builder surveys:
D.R. Horton and Lennar together comprise 25% market share
D.R. Horton: 91k closings or 14% market share
Lennar: 73k closings or 11% market share
The top 10 builders maintain 42% market share, which represents a 12% increase since 2019
This compares to 10% market share for the top 10 builders in 1994
Recent years have presented new challenges for smaller, private builders, creating opportunities for larger builders to exponentially grow
D.R. Horton and Lennar hold the #1 or #2 positions in 41 of the top 50 U.S. markets
NVR is next with the #1 or #2 position in seven markets
Toll Brothers and Pulte Group each have the #1 or #2 position in three other markets
In 2023, the top 50 MSAs had 410k new home closings or 62% of the national total
The top 10 MSAs represented 48% of new homes closed in the top 50 markets
The top 5 MSAs represent 32% of new homes closed in the top 50 markets
In 2023, the top 10 builders accounted for market share of over 58% in 49 of the top 50 MSAs
The Japanese-owned builders recorded 31k closings or 5% market share nationally, while Clayton Properties Group has grown to almost 10k closings or 2% market share through the purchase of nine stick builders since 2015
Only seven builders nationally deliver more than 10,000 homes a year
Only twelve MSAs deliver more than 10,000 homes a year
D.R. Horton is on track to deliver 10,000 alone in Dallas Fort Worth this year!
Large builders are focusing their efforts on delivering homes in the largest markets
Lennar closed 88% of its total delivered homes in the top 50 markets in 2023; D.R. Horton closed 65%
Pulte is also pursuing this strategy with 87% total closings in the top 50 markets
Since 2018 Whelan Advisory has closed 34 transactions for $14 billion in volume, earning our reputation as ‘The Closer’.