National Housing Market Outlook

M&A Due Diligence Is Key in Today’s Competitive Housing Market

Don Walker Headshot

Don Walker

June 26, 2018

During the last housing downturn, our national Consulting team helped restructure billions of dollars in bad debt. Since then, we have been busy using the same market feasibility and financial analysis skills to help builders, developers, and building product manufacturers grow or reposition assets. We just held our annual client-only Summit conference in June. Each year we witness new relationships forming among buyers, sellers, and potential capital sources.

By last count, we had assisted:

  • 25 builders/developers acquire portfolios of assets or entire companies by assisting with market feasibility and valuation efforts on deals valued at more than $5 billion

  • 16 builders prepare to successfully market and sell their companies by conveying an unbiased market outlook and communicating the builders’ history

  • 9 building product companies and investors underwrite M&A deals valued at more than $3 billion, with more to be announced

Along the way, we learned three big ideas worth sharing:

  • Buyers will pay up for new capabilities. A new geographic footprint, increased market share, or the benefit of a strong local management team tends to determine the winning bidder.

    • Builder/developer M&A. Acquirers entering new geographies will generally outbid those who already have a presence in a market, paying a premium for the management talent and geographic diversity.
    • Building product M&A. Acquirers adding synergistic product lines will generally outbid those who already have a presence in a product, paying a premium for the management talent and new product line.

  • Debt access drives the price. Acquirer capital sources matter significantly too.

    • Builder/developer M&A. Today’s home builder M&A is often a battle between private companies with patient, long-term capital and public companies with less patient, short-term capital. Both sources seem to be able to access long-term debt at very low interest rates, but publicly traded companies need to show the benefits immediately, while the privately held companies can take longer to show a return. Beyond the dollars and cents, cultural fit should also be a key consideration when analyzing acquisition opportunities.
    • Building product M&A. Today’s building product M&A seems to be a battle between industry bellwethers flush with cash and private equity firms utilizing leverage. Building product distributors, with variable cost structures, are getting purchased by buyers using more leverage than ever.

  • Uncertainty is a catalyst to sell. While several companies have been sold because their private equity owners were nearing the end of their funds’ investment horizons, other sellers seem to be motivated by retirement or the desire to avoid the next recession. For them, the certainty of “cash in hand” trumps the uncertainty of running a business in 2018 and beyond. The acquirers, however, see an industry with tremendous upside potential thanks to an aging housing stock and single-family construction that remains below 1993 levels.

In short, we expect M&A to continue, fueled by willing sellers, growth-minded buyers, and low-cost debt available from a variety of sources. The competition for efficient building platforms or companies with great assets is strong.

Conducting the proper diligence on market factors, cost and labor trends, financial analysis, and cultural integration pays dividends in the long run. Our team has years of experience running home building, land development, and building product companies and conducting new home feasibility studies. We love these assignments and can complete M&A assignments in less than three weeks. We can see the nearly immediate impact and value we bring to our clients in their due diligence efforts.

For further information or questions on M&A or evaluation of portfolios of assets, please contact us.

Building Market Intelligence™

Every week, we deliver analysis to over 40,000 subscribers with our Building Market Intelligence™ newsletter. Subscribe to our weekly BMI newsletters to stay current on pressing topics in the housing industry.

About The Author

Don Walker Headshot
Don Walker
Managing Principal
Don has 30+ years of experience in real estate finance and operations, including running a Top 40 homebuilder, and uses this experience to help clients make informed, strategic investment decisions in real estate. Don is passionate about build-to-rent, product and community planning, builder/developer M&A, and property and company valuations.

Contact Us

If you have any questions about our services or if you would like to speak to one of our experts about we can help your business, please contact Client Relations at clientservices@jbrec.com.

Products and Services Mentioned

green check icon

Real Estate Consulting

Our experienced team of consultants helps clients make sound housing investment decisions. We thrive on their success and work with many clients over multiple years and numerous projects.
green check icon

Building Products Consulting

Our building products team is comprised of industry experts with diverse sector and functional experience. We partner across organizations to provide custom consulting reports to aid organic and inorganic investment decisions, strategic planning, and marketing.
green check icon

Research Membership

Our research services enable our clients to gauge housing market conditions and better align their business and strategic investments in the housing industry. We provide a thoughtful and unique holistic approach of both quantitative and qualitative analysis to help clients make informed housing investment decisions.

Latest Insights

Dear Consultant: Will BTR Rent Growth Outpace Apartment Rent Growth Over Time?
The Death of the Hallway (and Other Design Trends) 
Homebuyers Have Never Been More Creditworthy