Irvine’s Interior Logic Group (ILG), the country’s largest provider of outsourced interior finish and design services for homebuilders, has its sights on building a bigger home of its own.
Late last month, ILG completed the purchase of the homebuilding design subsidiary of Select Interior Concepts Inc. (Nasdaq: SIC), one of its larger competitors.
ILG paid $215 million for Residential Design Services (RDS), a unit of SIC.
SIC was as of few years ago the second largest publicly traded company in Anaheim; it relocated its headquarters to Atlanta in 2019. SIC sold RDS in an all-cash deal.
RDS provides design, sourcing, and installation services to customers, helping them in the selection of a variety of interior products and finishes, including flooring, cabinets, and countertops.
The deal will “accelerate us to be the most prominent design, technology and installation provider across the building industry,” said ILG Chairman and Chief Executive Alan Davenport in a statement.
RDS
RDS serves a number of homebuilders with large area operations, including Tri Pointe Homes Inc. and Miami-based Lennar Corp., by providing design, distribution and installation services to their homebuyers.
The firm is expected to continue to operate under the same name “until the integration is complete” by later this year, at which point RDS will be included as part of the ILG name and brand.
SIC said the RDS segment reported revenue of $332.5 million in 2020, roughly a quarter of what ILG is estimated to bring in annually.
“When I joined SIC last June, I promised that my highest priority would be to focus on building shareholder value and this transaction is a significant accomplishment towards that objective,” said SIC Chief Executive Bill Varner.
“As a leading provider of interior finish and design solutions for the single-family homebuilding market, ILG is a natural fit for RDS’ customers, partners, and employees.”
SIC’s market value is about $215 million, less than what it’s selling RDS for. It had a nearly $255 million valuation at the time the company moved its base from Anaheim.
IPO Plans Shelved
The acquisition is the latest business shake-up for ILG.
The firm kicked off 2021 with formal plans to go public via an initial public offering.
It carried some $383 million of debt at the end of September 2020; proceeds from the IPO were expected to pay down some of that debt.
Less than a month later, the company changed course and announced it would to be sold to investment giant Blackstone in a $1.6 billion-valued deal, including debt.
Pandemic Impact
The U.S. housing market has been on a tear over the past year, bolstered by low interest rates and renewed homebuying demand fueled by prior shelter-in-place mandates.
Still, the pandemic put a crimp on demand for tenant improvement and design services.
Interior Logic reported $1.2 billion in revenue for the nine months ended Sept. 30, down about 6% year-over-year as a result of the pandemic on its operations, the company said in its IPO paperwork.
ILG is operating a business with thin margins, reporting adjusted earnings before interest, taxes, depreciation and amortization below 10% since 2017.
“We are subject to significant pricing pressures from our customers,” the company’s IPO filing noted.
Despite this uncertainty, ILG believes its growing technology platform mitigated its impact in 2020 and has left the firm in a good position to succeed going forward.
“Advancements in visualization technology and younger demographics reaching peak homebuying age have led to increasing demand for a more virtual homebuying and home design experience in recent years,” its registration statement said.
“Additionally, we believe the COVID-19 pandemic has been a catalyst for virtual engagement by homebuyers, resulting in a substantial increase in the use of our technology platform by our customers.”
Blackstone seems to agree with ILG’s optimism.
“ILG’s technology, relationships and purpose position it exceptionally well in the single-family real estate value chain,” said Vikram Suresh, a managing director at Blackstone, in a statement.
ILG’s Start
Interior Logic, initially known as Interior Specialists Inc. and previously based in Carlsbad, got its start in 2013, and has expanded via organic growth as well an aggressive roll-up strategy, completing more than 18 acquisitions since its founding.
The company said early this year that it serves 46 of the top 50 U.S. homebuilding markets, with local studios including spots in Anaheim, Irvine and Corona.
Along with 110 design studios, the company’s network included 109 warehousing and logistics centers, and nine countertop fabrication facilities SEC filings from early January indicated. Its total real estate portfolio, most of which is leased, ran some 2.6 million square feet, including 423,000 square feet of space in California.
Interior Logic leases about 13,000 square feet at its Irvine Spectrum headquarters, brokerage data indicates.
