Inside Landsea's Playbook For M&A Integration And Market Lift-Off

Landsea Homes's launch last week of its High Performance Home program in its recently-redoubled Dallas-Fort Worth market offers a strategic lens into homebuilding's macro narrative of market share wars, local scale, and longer-term housing cycle adaptiveness. The Dallas-Fort Worth lift-off initiative follows the company's strategic acquisition of Dallas-based Antares Homes for $232 million just seven months ago, marking an attention-grabbing expansion into Texas.

We are known for our industry-leading High Performance Homes and can't wait for homebuyers in the Dallas-Fort Worth region to experience Landsea Homes' high standard of living," Melissa Kelly, Dallas-Fort Worth Division President at Landsea Homes, said in a prepared statement.

The Landsea-branded High Performance Homes feature cutting-edge smart home automation, enhanced air quality systems, and energy-efficient designs, embodying Landsea's commitment to sustainability and innovation.

The operational whole-cloth "makeover" Landsea executed to integrate its newly acquired people and land assets over the past seven months in Dallas-Fort Worth follows its executive team's now-evolved standard-practice playbook for the kind of propulsive growth it expects to achieve through its M&A-driven market expansion.

Our goal is to be a top 10 homebuilder in any market we choose to operate," explains Mike Forsum, President and Chief Operating Officer of Landsea Homes. "When we decide to enter a market, we must find a player there. It's sort of a Goldilocks approach. They can't be too small. They're probably not going to be too big. You have to find one that's just right, a size we can acquire and digest effectively, efficiently, and with our capital. So we start off there by assessing the universe of those types of builders that are private, and then we start spinning plates. This is not an immediate trigger. It takes a lot of work to identify those operators who may be coming to a point where they're looking, possibly, to sell their company. For me, it's a lot of courting. It's time and relationships building."

This begins a pattern Landsea has followed and now codified in its six M&A deals over the past three years.

Navigating Strategic Growth: M&A By Design

In the ever-evolving landscape of homebuilding and residential real estate, Landsea stands out among its massive, decades-old peers, for its strategic agility and human-centric approach to market expansion and growth acceleration.

A conversation this week with Landsea's Mike Forsum, along with insights from Thomas Carpitella and Cullen Baker from FTS, reveal how this top-50 ranked national homebuilding enterprise leverages mergers and acquisitions (M&A) to fuel multiplier-effect expansion in a market fraught with challenges.

Financial and Operational Highlights

Earlier this week, Landsea Homes reported a robust financial performance for the second quarter of 2024, underscoring its successful strategic initiatives. Home sales revenue increased by 43.5% to $418.2 million, driven by a 41.0% increase in new homes delivered, totaling 760 units. The company also recorded net new home orders of 760, marking a 34.5% increase compared to the previous year. Adjusted net income was $13.3 million or $0.36 per share, reflecting a 9% increase.

John Ho, Landsea Homes' Chief Executive Officer, said in a statement on the Q2 2024 financials:

The strong year-over-year growth we experienced in both sales and closings this quarter was the direct result of our strategic efforts to grow our company and achieve better economies of scale." The average community count for the quarter was up 47% year-over-year, reflecting the company's investments and acquisitions.

The Secret Sauce of Integration

Forsum delves into the "secret sauce" that underpins Landsea's M&A acquisition and integration strategy, which involves securing the team's capability culture while easing out a principal owner – to pursue opportunities, often as Landsea land and development partners – after a transition period.

We honor the founders. We fully appreciate what they created. We want to reward them for all that they deserve, but we can take it from here, and we vow to continue to cherish the legacy that they've created in their coach and with their team," Forsum explains.

This approach preserves the legacy of the acquired companies while seamlessly integrating them into Landsea's unified brand.

From FTS founder and CEO Thomas Carpitella's perspective, the Landsea approach to M&A and integration is a "best-of-both-worlds" approach that combines the financial heft of a public company with the people and business culture of entrepreneurial engagement and teamwork often talked about among private operators.

Their approach speaks to the issue of, 'How can we take advantage of having public markets to sort of play to our advantage, but do away with some of the cutthroat practices that tend to occur when a public buys a private company? How can we preserve the assets we buy, both literally and philosophically?'" Carpitella says. "Landsea's got that down to an art and science.”

This encapsulates Landsea's commitment to maintaining the human scale essence of acquired businesses while leveraging the strengths of a public company.

Human Capital: The Heart of Landsea's Strategy

At the core of Landsea's M&A playbook is its focus on human capital, end-to-end, across an ecosystem of team members, business partners, land developers and sellers, trades, and building materials and product supply partners.

We have a genuine heart for our vendors and building partners," Forsum says. "They are the soul of what we do. There's nobody more important than the trades on our sites and the partner firms and individuals who supply us materials," he notes.

This culture of team work and partnership DNA carries into current and prospective team members, says FTS' Cullen Baker.

The biggest point is finding a candidate who you know will fit with Landsea long-term. It's a mix of who is qualified for the job, who fits culturally with the Landsea brand, and who has the experience to operate in a high-growth environment.”

Focusing on the right cultural and operational fit is crucial for seamless integration and sustained growth.

Strategic Nimbleness and Local Engagement

Landsea’s relatively smaller national footprint allows it to implement best practices in M&A integration and maintain agility in its operations. This nimbleness enables the company to adapt quickly to market conditions and customer needs. Forsum describes how Landsea's approach contrasts with larger, more established homebuilders:

If we took a different approach and said, we would acquire a company and just leave its leadership as is while we continue to move on with multiple brand strategy, I've never seen that work over time."

Forsum’s comments from the January unveiling of the Antares acquisition add context:

The process has given us time to know Tommy McAden and his team very well. We're confident this is right down the fairway in terms of combining with an organization that aligns closely with Landsea.”

This alignment in philosophy and strategy ensures a smoother integration and enhances Landsea’s ability to expand effectively.

Market Position and Future Growth

Landsea’s strategic focus on acquiring private homebuilders with significant land pipelines and strong local teams positions it to ignite future growth. Forsum outlines the company's ambitious goals:

We're starting to scratch the underbelly, Forsum tells The Builder's Daily. "About 3000 lots are closing, and we hope to double the size of our business in the next three years."

This growth will be achieved through a combination of strategic acquisitions and organic expansion in existing markets.

Thomas Carpitella emphasizes the potential for significant impact:

By entering Landsea in any capacity, whether superintendent or division president, you feel a sense of agency in an epic growth story," Carpitella says. "Your impact is that you're actually writing the story. You're not just handed an already-scripted textbook. Everyone's given a pen, and we're all writing this together.”

This sentiment underscores the unique opportunity within Landsea to shape the company’s future.

Outlook for the Remainder of 2024

Looking ahead, Landsea Homes remains focused on achieving its delivery goals and generating cash to reduce leverage ratios. The company anticipates new home deliveries in the range of 625 to 700 for the third quarter and 1,000 to 1,100 for the fourth quarter, with adjusted home sales gross margins expected to be between 20% and 21% in Q3 and between 23% and 24% in Q4.

Competing in a Complex Market

Landsea's approach offers a competitive edge in a market where public homebuilding giants grapple with private homebuilders, rental options, and shifting buyer sentiments in a wobbly, volatile economic backdrop. By fostering a unified organizational culture focused on capability, customer focus, high product quality, and environmental innovation, Landsea is poised to navigate the complexities of the homebuilding market.

Forsum’s insights reveal a company that is not only keeping pace with industry giants but also carving out a unique position through its strategic agility and commitment to human capital. As Landsea continues to grow, its emphasis on relationships and local engagement will undoubtedly play a crucial role in igniting the growth its strategists seek.