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Taylor Morrison to Acquire William Lyon for $2.4 Billion

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Taylor Morrison Home Corporation (TMHC - Free Report) has inked a deal with William Lyon Homes WLH — one of the largest homebuilders in the Western United States. Per the deal terms, Taylor Morrison will acquire all of William Lyon’s outstanding shares for $2.4 billion.

The transaction, which is expected to be completed by the end of first quarter or early second quarter of 2020, will not just expand the company’s footprint in Pacific Northwest and Nevada but also increase market share in Colorado, Arizona, Texas and California. The closing of the deal is subject to the satisfaction of customary closing conditions.

Terms of the Deal

Taylor Morrison will acquire all outstanding shares of William Lyon at $2.50 in cash and 0.80 shares of Taylor Morrison common stock. Post the completion of the acquisition, Taylor Morrison’s stockholders will own approximately 77% the combined company’s stocks and William Lyon stockholders will hold the remaining interest.

Markedly, the buyout will make Taylor Morrison the nation's fifth largest homebuilder (based on the last 12 months of home deliveries), and in a top five position in 16 of the combined 23 markets.

This national’s leading homebuilder and developer projects approximately $80 million in annualized synergies from the transaction.

Taylor Morrison’s Growth Efforts

Over the past years, Taylor Morrison has been seeking buyouts that expand its presence and boost growth. The recent deal will be its sixth builder acquisition in the past seven years, demonstrating its discipline and expertise in M&A.

Recently, the company reported third-quarter 2019 results. Although its earnings didn’t perform well this time around, its revenues grew 6.6% year over year. Net orders surged 39% from year-ago quarter. The growth was driven by strength across all regions and stable housing fundamentals. Also, its quarter ended backlog of 5,295 homes grew 19% with sales value of approximately $2.5 billion.

Despite being impacted by the Florida hurricane and the torrential rains in Houston, its business benefited from the efficiencies of scale, focus on move-up and entry-level buyers, and strategy to build affordable or lower-priced homes.

However, rising freight expenses, higher incentives to drive sales along with higher land/labor costs are denting performance of many homebuilding companies like Taylor Morrison, Lennar Corporation LEN and Meritage Homes Corporation MTH.

Shares of this Zacks Rank #3 (Hold) company have underperformed its industry so far this year. Nonetheless, estimates for 2019 earnings have moved 1.2% up in the past seven days, solidifying its growth prospects. Moreover, the recent move is likely to boost investors’ sentiments.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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