Merger Whispers on Wall Street

Expansion

Bill Lurz, Senior Editor
July 1, 2004
Professional Builder

Analysts and investors are turning up the heat on the big public home builders to maintain their double-digit growth rates, even in the face of expected spikes in interest rates and drops in housing starts. How? Some insiders seem to think another round of mergers among the mighty makes sense.

UBS investment bankers Bob Crowley and Adam Reeder recently told Julie MacIntosh of Forbes.com that they expect a significant increase in acquisition activity over the next 12 to 18 months, as the larger home builders look to expand geographic coverage and strengthen existing market positions - building the scale they need to generate more cost savings. A handful of top builders could end up with as much as 40% to 50% of the U.S. market over the next decade, Crowley and Reeder estimate.

What's interesting is the whispers that the largest builders are talking to each other about mergers because the low-hanging fruit among large private builders is all but gone. The problem with mega-mergers among publics is that a lot of stars - and egos - have to align to allow it to happen. And volatility in share prices works against it.

But the scale that could come from another deal like Pulte/Del Webb or Lennar/U.S. Home has to be tempting enough to spur talk.