Expect More Mergers in Single-Family Arena

IRVINE, CA-While he doesn't think that mergers of the sort his company is going through will be seen between public companies, Doug Bauer, CEO of TRI Pointe Homes, tells GlobeSt.com that he does believe we will see private homebuilders will acquired by public builders. “If you look at the top 15 market-capitalized homebuilders in the country, they're all in good shape. You will see more M&A activity over private homebuilders, not public.”

As GlobeSt.com reported earlier this week,TRI Pointe's board of directors has approved a definitive agreement in which Weyerhaeuser Real Estate Co. will combine with a subsidiary of TRI Pointe. WRECO is a wholly owned homebuilding and real estate subsidiary of Weyerhaeuser Co.

The transaction, valued at approximately $2.7 billion, is expected to close by the end of the second quarter of 2014. It will establish TRI Pointe as one of the 10 largest homebuilders in the US based on estimated combined equity market value and will provide Weyerhaeuser shareholders with the opportunity to own shares in one of the largest homebuilders in the country.

Bauer says that the strength of the top 15 US homebuilders is having access to capital, and, by giving it a market capitalization of $2.5 billion, the merger allows TRI Pointe to be a formidable competitor in the homebuilding industry. “We've improved our access to capital with this merger. We have a huge advantage over private companies.”

He adds that it's business as usual at his firm despite the merger. TRI Pointe continues to build and deliver homes, and the only operational changes are that its accounting, IT and HR departments will be very busy in the coming months with those departments being transferred from Seattle to Irvine. “All the infrastructure [changes are] to make sure that all six companies are operating.”

As GlobeSt.com also reported earlier this week, as part of the deal, TRI Pointe will acquire five distinct market-leading brands with operations in key growth markets: Pardee Homes in Southern California and Las Vegas, Trendmaker Homes in Texas, Maracay Homes in Arizona, Winchester Homes in the Washington, DC metro area and Quadrant Homes in the Puget Sound region of Washington State. These companies own or control approximately 27,000 lots primarily located in high-growth, lot-constrained markets. The transaction is consistent with TRI Pointe's strategy to “build a strong regional homebuilder focused on the nation's most attractive housing markets,” according to the firm.

“When you do a large merger like this, one of the biggest reasons they don't perform as well is because the two CEOs talk about how they're going to eliminate jobs as cost savings,” says Bauer. “But here, nobody has to look over their shoulder—everybody is operating today as they will tomorrow. It's human nature when you announce a big merger of this sort that people come to work and they're nervous, but nobody is going to be nervous at the operating-company level because we need their real estate at the local level—we need all those people.”

The fundamentals of the housing market also make the deal a promising one, he adds. “One of the beauties of this deal right now is that the housing market is in the early stages of recovery, and we think making this type of merger acquisition occur now is a smart bet. The housing recovery should last several years more at least.”