Discussions about homebuilding M&A have been picking up of late, says analyst Will Randow, and he expects the next deal will likely be one public company acquiring another, rather than a smaller private player.
"Aside from the normal benefits of M&A, we believe larger public builders may be more inclined to acquire the young (i.e. smaller public) given the slower paced recovery environment that exhibits lower pricing power," says Randow, who picks D.R. Horton (NYSE:DHI) as best-positioned to be a buyer.
Other possible acquirers include: KB Home (NYSE:KBH), Meritage (NYSE:MTH), PulteGroup (NYSE:PHM), Toll Brothers (NYSE:TOL), and TRI Pointe (NYSE:TPH).
Potential targets: Century Communities (NYSE:CCS), Green Brick Partners (NASDAQ:GRBK), M.D.C. Homes (NYSE:MDC), Meritage (also on the buyer list), New Home (NYSE:NWHM), Taylor Morrison (NYSE:TMHC), UCP, William Lyon (NYSE:WLH).
Randow's top accretive scenario ... TRI Pointe buying William Lyon.
Atlanta-based Acadia has 20 active and planned communities in the Atlanta submarkets. It's ASP in low $400's compares to Taylor Morrison's (TMHC -0.4%) mid-$200s, thus helping to diversity TMHC's customer base.
Last week's merger deal between Ryland and Standard Pacific was the first big deal since Pulte purchased Centex in 2009, but it could be a sign of things to come as homebuilders look to stock up assets to take advantage of the housing recovery.
Look to smaller, newly public players as spots for deals, say analysts, pointing to Tri Pointe Homes (NYSE:TPH), Taylor Morrison (NYSE:TMHC), and William Lyon (NYSE:WLH) as three whose share prices have struggled versus those of the larger builders.
Relative giants like D.R. Horton, PulteGroup, and Lennar already have a sizable presence in key markets, and are less likely to be buyers.