Lennar’s $5.7 billion acquisition bid for No. 5-ranked CalAtlantic would create the largest home building enterprise by revenue ($17 billion in 2016 revenues, according to our Builder 100 data), and would signal an ongoing consolidation of clout among fewer, larger players in the late innings of the current housing recovery.
Plus, just as D.R. Horton’s acquisition earlier this year of Forestar secured the nation’s No. 1 builder by volume a mega landbank of lots, Lennar’s purchase accomplishes a similar goal, adding CalAtlantic’s pipeline of nearly 65,000 homesites in 41 markets and 17 states, and strengthens Lennar’s evolving customer segmentation strategy–ranging from the multifamily for-rent and single-family rental end of the spectrum to the higher-end and 55+ community development opportunity offered by WCI and former Standard Pacific land positions.
Wall Street Journal staffer Cara Lombardo notes that the deal would enable Lennar to take out $250 million in costs, including $75 million in 2018 expense.
A statement from Lennar notes these highlights of the deal:
- Top 3 position in 24 of the 30 largest MSAs Combined revenue in excess of $17 billion and equity market capitalization of $18 billion
- Expect to realize $75 million and $250 million in synergies in FY 2018 and FY 2019, respectively
- Consideration is approximately 80% stock and 20% cash
Most importantly, Lennar’s access to building sites bridging the current recovery across to the next upcycle is now secure, and enables the enterprise to be both a consumer of its far more robust landbank and a seller of lots to other builders. Lennar has a deep executive strategic management bench, and could fully absorb both the real estate and the operational challenges of an integrated portfolio, so, likely, a host of talented CalAtlantic people may be seeking opportunities elsewhere starting now.
The press statement notes:
The combined company will control approximately 240,000 homesites and will have approximately 1,300 active communities in 49 markets across 21 states, where approximately 50% of the U.S. population currently lives.
What’s more, the more extensive marketshare in its operating areas gives Lennar greater sway with local skilled labor organizations, and allows for a smoother evenflow of operational activity in each of its geographies.
The five big questions surrounding the deal include these:
- What happens to CalAtlantic strategic management? Could any of the executive leaders at CalAtlantic be regarded as part of Lennar CEO Stuart Miller’s longer term leadership or succession planning strategy?
- What are the odds of further mega-deals, given that technology and data advances suggest that there may still be significant opportunity to reduce corporate overhead over-capacity, which big investors may insist on as a non-negotiable for continued support of stock value?
- Particularly, what might PulteGroup do to respond in kind, given that it has been consigned to the sidelines among home building’s Big Three as Horton and Lennar have used the recovery thus far to amass rocket fuel for growth into the 2020s?
- Will the Lennar business model–including multifamily, single-family for rent, and single-family for sale at every customer segment level–serve as a model for other home building enterprises, or is it unique to Lennar’s real estate and investment DNA?
- What will the combination mean in terms of operational transformation, use of data and building technologies, and innovation, given that Lennar has among the more innovative approaches to capital investment and strategy of all the traditional home building enterprises?
We’ll stay tuned.
