Next year will mark the end of an era for William Lyon Homes, one of Orange County’s iconic homebuilders.
The Newport Beach-based firm (NYSE: WLH), whose roots date back to the 1950s and whose associated firms have built more than 100,000 homes over its history, last Wednesday announced plans to be acquired by Scottsdale, Ariz.-based Taylor Morrison Home Corp. (NYSE: TMHC).
The sales price is for about $855 million in cash and stock; factoring in debt the deal is valued at $2.4 billion.
It’s the largest acquisition deal in the domestic homebuilding industry this year.
Taylor Morrison’s bid of $21.45 per share represents a premium of 16.7% to William Lyon’s Tuesday close. Officials with the Newport Beach builder, which went public in its current iteration in 2013 at a price of $25, had expressed disappointment in the company’s stock performance in recent months; earlier this year the company said that it was exploring the option of a buyout or potentially going private.
The Lyon family, whose Class B shares give it voting control on most corporate decisions at OC’s second-largest public homebuilder by market value, said it will support the deal.
Executive Chairman Bill H. Lyon, son of company founder and chairman emeritus Gen. William Lyon, will join Taylor Morrison’s board along with another as-of-yet named member, and existing William Lyon Homes shareholders will have about a 23% stake in the combined company.
Taylor Morrison, valued at about $2.3 billion, is the country’s seventh-largest builder. It will become the fifth-largest after the transaction is complete, with about 14,200 home sales per year.
The deal is scheduled to close in the second quarter of next year, pending shareholder approval.
The sale “marks a monumental day in the history of William Lyon Homes and begins an exciting new chapter for us all,” Bill H. Lyon and Matthew Zaist, the builder’s president and chief executive, said in a letter to employees last week.
This “unique opportunity to create a combined company with a broader geographic and consumer demographic profile with a team of professionals who have a very similar employee centric culture was too compelling for us not to pursue,” the letter said.
Regional, Affordable Focus
The acquisition expands Taylor Morrison’s presence in six existing markets and three new ones: Washington, Oregon and Nevada.
“We’ve long aspired to be in the Pacific Northwest and have looked for the right point of entry at the right time and at the right price—and that’s exactly what this represents,” said Sheryl Palmer, Taylor Morrison chairman and chief executive.
The acquisition price was in line with analyst expectations, according to Jay McCanless, an analyst with Wedbush Securities.
William Lyon Homes “has been looking openly in the past few months, and they’ve likely been in discussions with several companies. I’m glad they could come to a resolution,” McCanless said.
The impacts on the builder’s local operations haven’t been disclosed.
The two firms said they anticipate about “$80 million in annualized synergies” from the transaction.
Taylor Morrison, which was OC’s No. 7 builder by sales last year, has an operations base in Irvine.
William Lyon was No. 8 among builders in OC last year, with 245 sales. It employs about 290 people in the area, and this year opened the largest new community in the county, Irvine’s 536-home Novel Park development at the Great Park Neighborhoods.
Novel Park is one of the more affordable new home communities in the city in years; the builder’s focus on affordability was a reason that Taylor Morrison is buying it, company officials said.
Entry-level and more affordable offerings represented 85% of William Lyon’s closings last year.
“The combined business will represent a powerhouse of a builder that can meet” demand in those areas, said Zaist.
“We are excited to join forces with Taylor Morrison and draw upon their proven track record and greater access to scale efficiencies to meet consumer demand with a reputable, quality product,” said Zaist.
Consolidation Push
This is the sixth builder acquisition in seven years for Taylor Morrison.
“Taylor Morrison hasn’t been shy on the acquisition front,” said McCanless.
“With the current competitive nature of the industry, they realize there are benefits to having scale and scope.”
It’s the third big sale of an area homebuilder in two years.
Miami’s Lennar bought Irvine’s CalAtlantic Group in 2018 for $5.7 billion, while last year William Lyon bought fellow Newport Beach-based firm RSI Communities for $460 million.
