Trumark Homes – majority-owned by Osaka, Japan-based Daiwa House Industry Co., Ltd. –

Image source: Daiwa House public filings

Together with its new Daiwa House siblings, Stanley Martin Homes and Trumark Companies, CastleRock immediately becomes part of an empire whose collective firepower as an operating portfolio exceeds $2.14 billion in home sales revenue on deliveries of 5,700 homes, ranking the group well within the U.S.’s top 20 homebuilding enterprises.

As a final acquisition target, we were searching for an opportunity in the State of Texas as the link between both coasts,” Daiwa House chief financial officer Takeshi Kosokabe explained to investment analysts August 10th. “Excluding indirect subsidiaries, this acquisition represents a provisional conclusion to M&A plans for the Single-Family Houses Business in the United States.”

Mr. Kosokabe further noted that Daiwa House’s three-year plan budgeted for upwards of $900 million for M&A , “which we have now nearly reached with this acquisition.”

So, the question becomes, what’s next?

  • Daiwa House growth spurt: Daiwa House’s three-year plan, ending March 2022, calls for a goal of $3.6 billion [400 billion yen] revenues from its overseas real estate business group – which now includes CastleRock, Stanley Martin, Trumark, and Australia-based Rawson Homes. This still leaves a “go-get” between current revenue levels of the respective operators and the March ’22 goal.
  • Nesting instincts: Stanley Martin, acquired by Daiwa House in 2017, since acquired FD Communities [Atlanta] and Essex Homes [the Carolinas], expanding the Stanley Martin footprint up and down the Middle Atlantic-Southeastern states corridor. This suggests that Daiwa House might well consider further bolstering its operating scale and clout by nesting further acquisitions under CastleRock, Stanley Martin, or Trumark.
  • Talent show: CastleRock, Stanley Martin, and Trumark each boast strong, housing cycle-proven, entrepreneurial, tenured strategic leadership groups, each of whom has cultivated deep management and next-generation talent in the wings.

While the master footprint has taken on greater clarity through Trumark’s expansion into Colorado, and its now filled-out geographical coverage of California, there’s more to go both to the north and into Arizona, Utah, and Nevada, which is where both Trumark and CastleRock may push their brands and systems.

To that end, Trumark has engaged an advisor, who had a hand in the Wathen process, and who’ll stay on for the “stay tuned” part of Trumark’s trajectory. The press statement notes:

JTW Advisors LLC served as the exclusive financial advisor to Trumark Homes for this transaction. As a boutique investment bank focused exclusively on the real estate industry, JTW is a valued partner to Trumark Homes and will continue to counsel the company on future growth opportunities.

The Wider M&A Backdrop

Deal flow is likely to pick up over the next three to 12 months, but here’s a characterization of how the current environment may work to a select few privately-held homebuilders’ advantage, while others may undergo downward pressure on their valuations and eventual pay-outs:

There is a bifurcation in the supply of homebuilders,” says Chris Jasinski CEO and Managing Partner of JTW Advisors, Trumark’s consultant. “There are not a lot of great-quality builders being brought to the market, whereas there is real, healthy demand. Still, there are a lot of builders that operate at sub-average performance, that are not seeing the level of interest that the sellers would probably like.

Here’s what buyers want: a quality company that makes above-average margins. What’s more, they’re in a challenging entitlement environment and they’ve created a lot of value through the entitlement process. That’s the type of seller everybody’s after.”