Announcement of mega deal between Berkshire Hathaway and top 10 publicly traded homebuilders taylor morrison home This was a surprise to most in the industry. But the consensus is that this makes perfect sense and could provide some optimism for the currently struggling housing market.
Berkshire Hathaway agreed Sunday to buy America’s sixth-largest publicly traded construction company in a $6.8 billion deal. The offer represents a 24% premium to the homebuilder’s May 29 closing price and values the company, including debt, at about $8.5 billion.
The move comes as the U.S. housing market struggles with rising and volatile mortgage rates, soaring construction costs and weak consumer confidence. The war with Iran also hurt the housing market.
Taylor Morrison announced a rather aggressive multi-year growth plan just over 15 months ago.
“Certainly we’ve seen some changes in the market, and we’re moving back on the goals that we had, and certainly the timing may have been at risk,” Taylor Morrison CEO Cheryl Palmer said Monday in an interview on CNBC’s “Squawk on the Street.” “I think one of the things we’re very excited about is doing residential construction in five-, seven-, and 10-year cycles. Berkshire is probably thinking in seven-, 10-, or even longer cycles. Collaborations like this are very rare.”
Most analysts say that long-term view is why now is the right time for a deal.
“It means that very sophisticated buyers think valuations have bottomed out,” said Margaret Whelan, founder and CEO of Whelan Advisory, which specializes in homebuilder M&A. “I think sophisticated buyers will either wait and buy later or pay less if they think the market is still down.”
Whelan explained that stocks are anticipating a fundamental shift: “That means the housing market itself is probably starting to bottom out here soon, and that’s a good thing, because in a situation where we don’t know what interest rates are going to be, no one would have really known that.”
John Burns, founder and CEO of John Burns Research and Consulting, said the outlook for the housing market over the next few years is bleak and stocks are in a tough spot as a result.
“But long-term thinkers like Berkshire Hathaway and Japanese companies see this as a platform to buy good companies over the long term, and it’s really that simple,” Burns said.
American home builders have recently become a target for Japanese buyers. Sumitomo Forestry just signed a $4.5 billion deal to acquire TriPoint Homes. Overall, Japanese companies currently own 33 homebuilding companies operating in the United States.
“Many (homebuilding) stocks are currently valued at below book value due to the short-term outlook for the industry, which is exactly the time to find great bargains for long-term investors,” Burns said.
Dream Finders Homes recently attempted to acquire beazer homes The acquisition was valued at approximately $704 million, but Beazer’s board of directors rejected the bid, saying in a release that the company was “significantly undervalued.”
Berkshire is buying before the housing market begins its expected recovery.
According to government statistics, new home sales in April fell 11.3% from the same month last year. The number of single-family housing starts and building permits also decreased year by year. Homebuilder sentiment has remained in negative territory for the past two years, according to the National Association of Home Builders/Wells Fargo Housing Market Index.
“Maybe that means we’ll be at rock bottom for two years. I doubt that. I think we have pent-up demand,” Whelan said, adding that he expects the war with Iran to be over by next spring. “I think it will be ready in 2027, so it’s not that unreasonable for a company like that to buy six months early.”
Correction: This article has been updated to correct the name of John Burns Research and Consulting.
