Builder Consolidation Likely to Be Strong in 2024

In December, Margaret Whelan, founder and CEO of Whelan Advisory, projected 2024 to be a “record year” for merger and acquisition activity following a strong pace of transactions to close 2023. Thus far, Whelan’s forecast has rang true: Six deals have been announced in the first six weeks of 2024.

The strong cash position of public builders, in particular, was a factor behind anticipated M&A activity in 2024.

“The builders are flushed with cash. Many of them right now have no net debt,” Carl Reichardt, managing director of research and home building analyst for BTIG, shared with BUILDER following the round of third quarter earnings calls in November. He mused that while some public companies would buy back stock or get more aggressive in the land market, some would be active in mergers and acquisitions with their excess cash.

While the blockbuster merger between Sekisui House and M.D.C. Holdings was the most noteworthy deal completed to date, the other five transactions signal a greater ongoing trend of market consolidation in the single-family sector.

The acquisitions of Landmark Homes by Century Communities and Crescent Ventures by Dream Finders Homes were strategic expansions into new markets for the public builders, while Landsea Homes’ acquisition of Antares Homes was the latest effort to increase the home builder’s portfolio in Texas, its new home state of operations. United Homes Group continued its rapid expansion as a public company by doubling its presence in Myrtle Beach, South Carolina, with its acquisition of Creekside Custom Homes.

Daiwa House-backed CastleRock Communities’ acquisition of The Jones Company of Tennessee signals the Japanese parent company’s intent of creating a strong presence across the United States.

In addition, the acquisitions by Dream Finders Homes, CastleRock Communities, and Century Communities marked new expansions into the Nashville, Tennessee, metro market. The interest by home builders in the market is likely influenced by strong demographics. The National Association of Realtors ranked the greater Nashville market No. 7 on its list of metros with the most pent-up demand, forecasting it to outperform other metro areas in 2024. Nashville also featured on Forbes Advisor’s list of the best metros for young professionals and ranked No. 6 on Zonda’s most recent Baby Chaser index.

Alex Barron, president and founder of the Housing Research Center, says the public-private acquisitions are the likely path for M&A moving forward, with public builders continuing to take “advantage of their cost of capital and access to labor.”

“In the current environment, I think public builders have a competitive advantage in many aspects of the business, the biggest being capital availability. The balance sheets of public builders are in fantastic shape, they are sitting on a ton of cash,” Alan Ratner, managing director for Zelman & Associates, told BUILDER following the Sekisui-M.D.C. Holdings deal. “I think there will continue to be industry consolidation.”

While the balance sheets of public home builders underscore the demand for M&A from buyers, the environment is also very appealing for would-be sellers, including smaller, regional private builders.

Whelan says many private builders have posted record profit and revenue numbers over the past three to four years.

“When you have more buyers—and we have more buyers today in the market than I’ve ever seen before—that drives the valuation, the multiple up,” Whelan says. “When you have high profits and revenue, you are getting a high multiple on a high profit number; that leads to a really high transaction value. That is what is bringing more sellers to the table.”

Many sellers also are retaining the opportunity to remain with the buyer as part of a larger organization post-transaction, keeping employees, culture, and operations largely intact.

“I think now is the time to sell if you are a private builder given the run that the public builder stocks have had, the implications that has for private [builder] valuations, and the added constraints we’re seeing in the land market,” Ratner says. “There’s definitely a big appetite on the private site. The environment for M&A is pretty attractive from that regard.”

As the market consolidates, analysts suggest the consumer will likely benefit. Smaller builders have larger costs of capital, while larger operations experience economies of scale cost advantages on the front end of operations that can be passed along and shared with end buyers.

“Right now, I think consolidation is a positive for the consumer,” Barron says. “The bigger the builder, the more they are able to put money into buying down the rates, which benefits consumers. I think consolidation is helping those consumers who buy from the bigger builders.”