Misawa's 51% Buy Of Visionary Homes: A Theme And Variations
Mergers and acquisitions deals in home building may vary in size these days, but don't be fooled into thinking a smaller transaction doesn't have potentially sweeping implications for a business facing a whole lot of uncertainty.
Take, for instance, word that Jeff Jackson and Justin Cooper, co-founders of 20-year-old Logan, Utah stalwart Visionary Homes have agreed to Tokyo-based Misawa Home's purchase of a 51% stake in the company as Utah's star rises as a post-pandemic technology and business center.
Visionary Homes was founded in 2004 and is a privately held homebuilder with the largest footprint of Utah builders from Logan to St. George. The homebuilder has thirty active communities that serve both first-time and second-time homebuyers. The company's vast mix of home designs across single-family and multifamily communities also offers the company flexibility to adapt to changing consumer demands while being able to serve increasing migration rates across the state over the last several years and counting. To keep up with changes in consumer preferences, the company is focused on adopting cutting-edge technology to improve its systems and processes for growth and has further differentiated itself in the market with an award-winning design center experience.
Visionary Homes has expanded its market share through steady sales performance and a dedication to evolving while meeting the needs of today's customers. Visionary has strategically adjusted its product mix to not only include single-family homes, but also townhomes and condo communities. In 2022, the share of multi-family housing in the company's total sales of 804 units reached 40%. Visionary has not only offered homebuilding growth through starts and sales year over year, but the firm also takes pride in being named "Best Homebuilder" four times throughout 2021, 2022, and 2023 across The Best of Northern Utah and The Best of Southern Utah awards programs. Additionally, Zonda and other internal Visionary Homes measures have respectively reported the company as being the fourth largest builder based on sales in 2022 and 2023.
The combination is Misawa's second U.S. market inroad, having completed a similar deal to take a majority interest in North Texas operator Impression Homes in December 2018, as Misawa established its Misawa Homes America Inc. footprint in Dallas-Fort Worth-area Southlake, TX.
The latest move signals an ambition level that suggests Misawa may continue to play as an M&A acquirer, thanks to both demographic and housing growth constraints in Japan, and prevailing, more favorable capital costs in Japan's investment markets, compared with elevated U.S. capital borrowing costs.
Per a press statement about the Misawa-Visionary combination:
In 2018, Misawa Homes Group entered their first market outside of Japan by investing in Australian-based Homecorp Constructions Pty Ltd., and just one year later entered the housing industry in the US by acquiring an interest in Impression Homes LLC., a homebuilder established in the Texas market. The investment in Visionary Homes is Misawa's first within the western US, which will support the parent firm's goals to accelerate the growth of its overseas housing portfolio reaching $497.5 million (approximately ¥80 billion) in fiscal 2024. The combined Misawa Homes sales of overseas business in these two countries amounted to $368.7 million (approximately ¥59.3 billion) in 2023."
Immediately, the "sweeping implications" aspects of what appears to be a one-market medium-sized homebuilder M&A story start to come clear.
Here's some context from one of our earlier deal stories:
Three diversified Osaka, Japan-based enterprises – Daiwa House, Sekisui House, and Sumitomo Forestry – and Knoxville, TN-based Clayton Homes, now all rank as top 20 U.S. homebuilding companies. Two of the four are already in the top 10. Likely, it won't be long before all four nest among the very largest publicly traded U.S. residential construction and development powerhouses."
In that context, the Misawa Homes-Visionary Homes combo – modest in and of itself on its surface – starts to vibrate with meaning in a consolidating and concentrating U.S. homebuilding landscape, dealing now with an inflection in demand and a raft of ongoing elevated operating conditions and assumptions.
- Another Japan-based acquirer, Misawa – albeit smaller by comparison with Sekisui House, Sumitomo Forestry, and Daiwa House, and Ashai Kasei – has joined those four organizations, along with smaller players Panasonic Homes and Toyota Housing Corp, has signaled an active near- and mid-term market expansion plan.
- A highly-activated pool of market share-hungry strategic acquirers, including aforementioned Japan-based buyers, China- and Canada-headquartered strategics, a quiet-but-ever-opportunistic Knoxville, TN-based Clayton Homes, not to mention 20-or-so publicly-held U.S. homebuilding enterprises, all of whom want to secure predictable volume growth within their current operating arenas.
- Timing for sellers: Privately capitalized homebuilding operators, pressured by tight credit, dizzying land replenishment costs, and high A&D borrowing costs, may begin to have to make tough choices about how they'll be able to go forward. Can they continue to compete in the lot-pipeline sweepstakes without a deep-pocketed strategic supporter, or will this now be the moment to cash in while their current owned- and controlled land assets carry peak-level value?
Japan-based companies show no loss in appetite in their respective quests for dominance as residential construction and real estate players in the U.S. market. Per an article this week by Nikkei staff writer Narushi Nakai:
Daiwa House, which acquired Stanley Martin in 2017, aims to grow its U.S. home sales roughly 50% over fiscal 2023 levels to 10,000 by fiscal 2026. Catching up to Sekisui House is a goal, according to Stanley Martin CEO Steve Alloy.
Sekisui House acquired American builder M.D.C. Holdings this April, lifting the group's U.S. sales to around 15,000 homes in 2023. It aims to hit 20,000 for the year ending January 2032.
Sumitomo Forestry had been the top Japanese player in the U.S. The group began operating there in 2003, leveraging connections from its lumber business.
Japanese homebuilders are making inroads into the U.S. as Japan's declining population weighs on sales back home. Housing starts totaled 800,000 in fiscal 2023, down roughly 30% compared with 20 years earlier, according to Japan's Ministry of Land, Infrastructure, Transport and Tourism."
Visionary Home's commitment to tap "cutting-edge technology to improve its systems and processes for growth" fits its new majority-owner's DNA to a tee. Misawa, founded in 1967, claims it has 7,850 patent applications – an industry high – since it developed its "panel adhesion construction method."
Misawa made a successful investment in Impression," comments Tony Avila, founder and CEO of Builder Advisor Group [not involved in the transation]. "They wish to continue their success by investing in Visionary and diversifying in Utah."
Avila predicts that homebuilding's M&A deal-flow story will make 2024 one for the books by December 31.