Image source: Company filings

The Sekisui House Group has set a target of supplying 10,000 homes per year in overseas markets including that in the United States in FY2025 and will expand its operating areas into Texas by making Chesmar HD a wholly owned subsidiary. In addition, by transferring Sekisui House technologies to Chesmar HD, we will endeavor to enhance value-based marketing, further bolster profitability, and improve operational efficiency as we continue providing high added value to customer and enhancing corporate value.

M&A In A More Adverse Housing Market

In stark relief with buffeting squalls sucking new-home buying, building, development, and investment into a near-term – 24- to 36-month – vortex of mortgage/price axis forces, stands a 2020s decade whose signal characteristics will be double-barrelled demographic and household growth and an increasingly-finite arms race of enterprises adding talent, real estate, and building technology capability to keep pace with that growth in a backdrop of scarce supply.

It’s that context that’s cranking ever-tighter a winch of capital and other resource constraints on privately-held homebuilding firms, whose fundamental prospects for growth in underbuilt markets are otherwise gangbusters.

Motivations for a private homebuilding firm to sell now are the same as they’ve been for a while, only an order of magnitude more intense and urgent:

  • Desire for growth capital
  • Personal bank loan guarantee chips taken off the table
  • Demographics – principals reach an age point where they’re ready for an exit
  • Cycle-timing – peak valuation in particular markets expected to weather downturn

On the other hand, buyers – a number of them glutted with “dry powder” cash and re-termed debt not due for seven or eight years, and anxious to produce performance results that bear a modicum of similarity to projected revenue, unit closings, and margins – are decidedly on the prowl.

The block of M&A players on the buy side – as robust as it has ever been in many mergers and acquisition experts’ experience – includes strategic public builders hungry for incremental volume in select emerging pandemic-era markets – with a skew to hot secondary and tertiary markets that combine jobs growth and more attainable new-home price points.

Too, the buyer cohort includes an international contingent – Landsea from China, Empire, Mattamy, and Brookfield, and others from Canada, and at least four Japan-based companies that started buying homebuilding operators in the middle part of the last decade – Daiwa House, Misawa, Sekisui House, Sumitomo Forestry.

Less active lately, but never out of the picture, Clayton Homes may continue to add to its top 10-level portfolio of site build operators as is continues to play out its “democratization of homeownership” strategic thrust, complementing its ever-evolving manufactured home offerings.

And, not to forget mentioning the newest class of potential homebuilding entity acquirers, Wall Street-backed single-family-for-rent developers that need operational capability to monetize their aggressive cash-flow model rental communities.

Now that conditions have become turbulent, pivoting builders from an operating environment where the big challenge was supplying an unmet need for homes into one that has severely dampened payment power levels, we’ll see a new level of urgency around some of these M&A explorations and deals.

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