Apollo Global Management’s recent move to acquire The New Home Company (NYSE: NWHM) comes amid a period of expansion for the homebuilder founded 12 years ago in Orange County, and a time of growth for the larger homebuilding industry, which has seen demand for new homes reach historic highs over the course of the pandemic.
Apollo, a New York-based investment manager with $461 billion of assets under management, said in late July it would buy New Home in an all-cash deal that will take the builder private. The sale gives New Home an enterprise value of $338 million.
The deal comes seven years after the then Aliso Viejo-based company hit public markets, and more than a decade after former John Laing Homes CEO Larry Webb and a trio of other local homebuilding execs with ties to Irvine’s John Laing and Irvine Co. started the local company in the teeth of the Great Recession.
A new role for Webb, who stepped down as CEO of the builder in 2019 to become executive chairman, has yet to be decided.
There’s more clarity for the local operations of New Home, which is expected to keep its executive offices in Irvine, where it moved to earlier this year from its longtime base in Aliso Viejo.
Its corporate headquarters are currently based in Scottsdale, Ariz. It moved its headquarters designation earlier this year, as it began to expand its operations in that state’s fast-growing housing market.
Boost in Valuation
Apollo can “provide flexible capital” to New Home, allowing the company to “accelerate the growth of our business,” Webb said in a statement.
“As consumer demand for new homes accelerates amid limited supply, we continue to see exciting opportunities to invest in the residential housing market,” added Peter Sinensky, partner at Apollo.
“New Home’s consumer-driven approach and dedicated focus on integrating unique design and architecture has separated the company as a best-in-class homebuilder. We are excited to work with the management team to execute on the company’s growth strategy and provide more homes to consumers across the country.”
Apollo will pay about $9 per share for New Home, which is an 85% premium to the closing stock price of the company the day before the transaction was announced.
New Home went public in 2014 at $11 a share; its stock has traded below that price for much of the past few years.
Webb sold John Laing Homes in 2006 for $1.05 billion to a Dubai-based builder, Emaar Properties, when it was the second-largest private builder in the country. He left that firm a year after the sale.
Many homebuilders have profited from burgeoning demand in the past year, and New Home is no different.
The company saw home sales revenue jump 75% during the second quarter to $135.9 million, compared to $77.8 million in the year ago period, according to preliminary earnings released last week.
Net new orders rose 14% to 187 while sales absorption jumped 50% to 3.3 per community.
Deliveries rose 98% while the average selling price decreased 12% to $666,000, in line with the company’s goal to shift to more affordable price points, partially driven by a significant increase in deliveries in Arizona.
The company first entered the more affordable state for housing through land buys in 2016, and has been ramping up its presence since, specifically in the Phoenix market.
New Home reported 197 new home orders in Arizona last year, up nearly 600% year-over-year. The rest of its 2020 home orders, 619, were in California.
In OC, it is currently selling at Ladera Ranch’s Covenant Hills and Irvine’s Great Park Neighborhoods.
The builder, with a market cap around $161 million, this year announced plans to move into a third state, Colorado, via the $8.4 million acquisition of Denver’s Epic Homes.
“Over the last several years, we have transformed the company into a growing and diversified builder with operations in three states,” Webb said. “We have strengthened our balance sheet, streamlined our cost structure and repositioned our product offerings to cater to a deeper pool of buyers.”
The company has also taken steps to deleverage its debt in recent years. At the end of June, the company had total debt of $281 million, compared to $295 in June 2020. It also upped its cash balance by $31.7 million to $117.3 million.
“I am extremely proud of our team and the progress we’ve made over the last few years in transforming the company into a more profitable, better positioned homebuilder,” said Leonard Miller, who took over from Webb as CEO in 2019.
“By joining forces with Apollo, we will have the financial flexibility to build on our recent successes and take the company to new heights,” Miller added.