Standard Pacific Corp.’s long run as the largest homebuilder based in Orange County could come to an end once the company’s pending acquisition of Ryland Group Inc. is complete.
Standard Pacific announced last week that it had entered into a deal with Westlake Village-based Ryland to combine homebuilding operations. The deal will create the fourth largest builder in the U.S. by revenue at about $5.1 billion last year.
The two companies will own or control about 74,000 home lots across the U.S.—the fifth most of any builder in the U.S.—with an expected market value of about $5.2 billion once the deal closes. Their combined enterprise value—essentially market cap plus debt and minus cash—will approach $8 billion on a combined basis, according to Ryland Chief Executive Larry Nicholson.
The deal was described by both companies as a “merger of equals,” although Standard Pacific will be the technical acquirer and surviving company in the transaction, and its existing shareholders will retain a 59% stake in the combined enterprise.
The deal is expected to close this fall. The companies said new corporate name and stock ticker symbol is expected to be announced prior to the merger’s completion.
Headed East?
A location for the combined headquarters for the two Southern California-based companies hasn’t been announced.
Comments from executives suggest the company could skip both Irvine and Westlake Village—which straddles the Ventura- and Los Angeles county line—in picking a location for its headquarters.
“Given the size of the new company, it certainly makes sense to us that within the next couple years, we would expect to develop a corporate presence in the East Coast, while continuing to maintain a corporate presence on the West Coast,” Standard Pacific Chief Executive Scott Stowell said.
A move east for the corporate HQ could see the combined operations take on a structure similar to that of Lennar Corp., the No. 2 homebuilder in the U.S. by sales. Lennar has headquarters in Miami but runs much of its day-to-day operations from Aliso Viejo.
Local job cuts appear likely in the wake of the deal. The two companies said they expected to save as much as $70 million in annual costs from the deal as a result of overlap in both firms’ corporate and mortgage operations, among other moves.
Standard Pacific had about 220 workers in Orange County as of February according to Business Journal data.
Only one local executive departure has been announced. Ronald Foell, cofounder and Standard Pacific chairman, will retire at the time of the deal’s closing.
New Role
Stowell, who became chief executive of Standard Pacific in 2012, will take on the role of executive chairman for the combined company, while Ryland’s Nicholson will become president and chief executive.
Standard Pacific’s Jeff McCall will retain the chief financial officer position.
Stowell, who serves on the board of Newport Beach-based Pacific Mutual Holding Co.—the ultimate parent company of Pacific Life Insurance Co. (see related story, page 1)—said his new role as executive chairman means he will head up the combined company’s land investment committee. He’ll also provide strategic guidance for California operations, among other duties.
California has long been the largest source of business for Standard Pacific—it now represents about 46% of the company’s revenue. The state will remain the No. 1 market for the combined company but only will make up about 27% of all sales. Texas—the largest market for Ryland—will be the No. 2 market, with about 19% of sales.
Standard Pacific ranked No. 3 in OC in terms of sales last year, with 382 sales here. This month, the company opened Greenwood, a 375-home project at Tustin Legacy.
Ryland was No. 8 among local builders here last year, with 169 sales.
The two companies each are building homes at some of the area’s bigger developments that are opening this year.
Standard Pacific and Ryland are among the companies set to open sales this summer at Beacon Park, a 960-home project that’s the second community at the Great Park Neighborhoods in Irvine.
The two companies are also involved in the first phase of development at Esencia, the second village planned at the ranch community of Rancho Mission Viejo.
Esencia will total 2,700 homes and open for sales this fall. Homes there will include a portion geared toward residents 55 and older. It’s a market segment the combined Standard Pacific-Ryland will be looking to focus on, Stowell said last week.
“We want to grow (our) luxury (division), and grow active adult,” he said.
Move-up buyers now make up about 71% of the two companies’ business. Luxury homes represent about 4% of sales, while active adult is about 1% of sales.
Active Area
The Standard Pacific deal with Ryland marks the largest of three major buys featuring an OC builder to be announced in the past two years.
TRI Pointe Homes Inc. in Irvine announced in 2013 a $2.8 billion cash-and-stock deal to buy the homebuilding division of Federal Way, Wash.-based timber conglomerate Weyerhaeuser Co.
That deal, which closed last July, is expected to vault TRI Pointe—formed in 2009, and now operating under the TRI Pointe Group name—to a place among the top 10 builders once it ramps up sales at the Weyerhaeuser Co. builders it acquired.
Newport Beach-based William Lyon Homes paid $520 million to buy the homebuilding operations of Polygon Northwest Co. in 2014, acquiring the country’s 40th largest builder by sales that year.
The deal with Polygon gives William Lyon Homes a presence in the Pacific Northwest. The combined companies’ operations last year would make it No. 20 among all builders in the U.S. based on sales.
‘Early Innings’
Not all area homebuilding deals have worked out as planned.
Dubai-based builder Emaar bought John Laing Homes in Irvine for nearly $1.1 billion in 2006, but by 2009 the company was out of business amid the rubble of the last housing downturn.
Officials with Standard Pacific and Ryland said they’re still ahead of the curve in terms of deal-making this time around.
Ryland’s Nicholson said last week that the homebuilding industry was still “in the early innings of a recovery,” while Stowell said he expects to see other homebuilder mergers as the recovery continues.
“This is the best possible combination,” Stowell said.
The move to buy Ryland marks another chapter in the recent renaissance of Standard Pacific, which was founded by Foell and Art Svenden in Costa Mesa 50 years ago, relocated to Irvine in 2000, and has built more than 50,000 homes.
The company appeared poised for bankruptcy, and perhaps liquidation, following the last recession and housing downturn.
It got a $530 million investment from New York-based hedge fund MatlinPatterson in 2008 in return for a controlling stake in the company, worked to fix its balance sheet, and has emerged as one of the most profitable builders in the country in the past few years.
MatlinPatterson has 49% voting control of Standard Pacific and said it approves of the deal.
