In a white hot M&A market, we are often asked about sectors where investors can buy a business at a “reasonable” value. While the overall market continues to be strong, there are pockets of opportunities created in sectors where investor sentiment or underlying market trends don’t appear to be favorable – as has been the case for companies serving the new home residential construction market.
No one can miss the highly publicized (some may say sensationalized) slowdown in the new home building sector, and many funds are worried about the perceptions their LPs will have if they invest in this market. It is these dynamics that has temporarily reduced the capital flowing to the sector and is creating an opportunity for an educated contrarian play. While the national data may paint an unfavorable picture, many regional markets and key MSAs have begun to stabilize and the long-term drivers (homebuilder consolidation, population trends, home ownership, etc.), particularly in the southeastern and southwestern U.S., remain strong. With valuations that have declined over the past 12 – 18 months, it appears there is value to be found in an M&A market that is otherwise littered with stories of companies selling for record multiples.