Meritage Homes, one of the nation’s top five homebuilders by volume, has announced a significant acquisition as it expands its national footprint to the Mississippi Gulf Coast.

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A key driver behind this accelerated M&A activity is the Federal Reserve’s recent policy rate cut. The Fed’s 50-basis-point reduction, announced in September, marks the beginning of an easing cycle that has already reduced borrowing costs for public builders. This cut is expected to lower mortgage rates further, creating a prime opportunity for acquisitions by reducing capital costs and enabling builders to secure strategic assets in high-demand regions.

In a recent analysis, Avila noted that the current economic environment creates ideal conditions for public builders to pursue acquisitions and secure growth pathways for 2025 and beyond.

With the Fed’s recent rate reduction, borrowing costs are expected to fall significantly, which will compress mortgage rates for buyers and increase profitability for builders,” Avila said. “This creates the perfect storm for M&A, as builders seize opportunities to expand land portfolios before the market becomes even more competitive.”

Avila’s firm is currently representing seven companies in active acquisition discussions, further indicating the high level of interest in the market.

Why Private Builders Are Selling

For many private builders, the current M&A climate offers an ideal exit opportunity. Rising land costs, limited access to capital, and intensifying competition from public builders have made the operating environment more challenging. These factors, combined with an attractive valuation environment, make now a compelling time to sell.

Elliott Homes, founded in 2009 by Brandon and Adrienne Elliott, has grown into one of the premier homebuilders on the Mississippi Gulf Coast. Known for its quality craftsmanship and award-winning designs, the company has built a loyal customer base and a strong local brand.

However, as with many private builders, Elliott faces the pressures of a high-cost, competitive landscape where operational efficiencies and access to capital often determine long-term viability. As Elliott shifts its focus, Meritage’s acquisition allows the company to monetize its hard-won market presence and refocus on land development — an area where Brandon Elliott believes his team can generate significant value in the years ahead.

Elliott will stay on with Meritage for at least a transition period, and see to the completion of its current Work-in-Process. After that, he may shift his focus to local land acquisition and development, and could continue to provide critical lot supply to Meritage while creating new growth opportunities for Elliott Homes’ leadership team.

This pivot reflects a broader trend among private builders, including WCH Homes’ recent transition to land development following its acquisition by Lennar. As many private builders face constraints on their capacity to expand while navigating rising land and construction costs, M&A provides an appealing exit that allows them to focus on land development or other complementary ventures where they can leverage local relationships and market expertise.

Public Builders’ Strategic Edge

The acquisition of Elliott Homes by Meritage demonstrates the advantage public builders have over their private counterparts, particularly in the current economic climate. Public builders’ access to fixed-rate debt, extensive capital reserves, and economies of scale position them to outcompete private builders, who increasingly struggle with rising borrowing costs and limited access to capital.

In Q2 2024, public builders gained 490 basis points of market share year-over-year, now accounting for 43% of New Home Sales nationwide, according to a Wolfe Research report. This growth is a testament to the public builders’ ability to leverage strategic M&A to consolidate market share and expand their geographic presence.

As public builders pursue acquisitions to secure critical lot supply and expand market share, private builders find it challenging to keep pace. This pressure has created a robust M&A environment, where private builders are increasingly opting to sell rather than face the daunting task of competing with larger, capital-rich competitors. Public builders like Meritage, Lennar, and D.R. Horton are capitalizing on this trend, acquiring local builders with valuable land positions and established local networks that can be immediately integrated into their operations.

The Meritage-Elliott Homes deal underscores a key shift in the homebuilding industry: consolidation. As public builders continue to gain market share, the industry is entering a period of intense competitive realignment where larger players are leveraging their financial advantages to acquire, integrate, and dominate regional markets. This consolidation is expected to continue as public builders pursue market dominance in high-growth areas such as the Southeast and Gulf Coast.

Looking Ahead: Implications for 2025 and Beyond

With this acquisition, Meritage is well-positioned to ramp up its production capacity in the Mississippi Gulf Coast market, aligning with its broader goal of supplying move-in-ready homes to meet consumer demand. The integration of Elliott Homes’ assets will enable Meritage to grow its community count and closings volume as it prepares for an expected demand resurgence in 2025, spurred by lower mortgage rates and continued domestic migration to affordable regions.

The outlook for M&A remains strong, with experts like Avila predicting that the current environment will drive additional transactions into early 2025. Factors such as millennial household formation, increased demand from the 55-plus market, and potential favorable housing policies from the upcoming election are expected to sustain demand for new homes, particularly in markets like the Southeast and Gulf Coast.

For CEOs, presidents, and strategic leaders across the homebuilding industry, the Meritage-Elliott Homes acquisition offers valuable insights into the imperatives of the current M&A landscape. As consolidation reshapes the industry, leaders will need to carefully weigh their options—whether to pursue acquisitions, be acquired, or adapt to new competitive dynamics. Those who act decisively will be best positioned to secure the resources and market share necessary for sustained growth.

What’s Next?

The Meritage-Elliott Homes acquisition marks a significant moment in the 2024 homebuilding M&A cycle. It captures the essence of a competitive environment where strategic acquirers, well-capitalized and focused on growth, are reshaping the industry landscape through targeted acquisitions. For Meritage, this deal strengthens its operational presence in a high-demand region while securing local expertise and valuable land assets. For Elliott Homes, the acquisition provides a timely and strategic exit that allows it to refocus on land development and capitalize on the value it has created.

As the U.S. homebuilding industry moves toward 2025, the M&A landscape will continue to evolve, with public builders leveraging their scale and access to capital to consolidate market positions. In this environment, homebuilding leaders will need to navigate the balance between growth and competition, making strategic decisions that will define their position in an industry marked by transformation and opportunity.