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What Is D.R. Horton’s Acquisition Growth Strategy?

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D.R. Horton is continuously looking for opportunities

Acquisitions to gather critical mass is part of D.R. Horton’s (DHI) core strategy. The company continuously evaluates opportunities for potential acquisitions of other homebuilding or related businesses to expand its operations.

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Benefits of D.R. Horton’s acquisition strategy

Acquisitions of homebuilding businesses can provide D.R. Horton (DHI) with immediate land and home inventories, as well as control of additional land and lot positions through option contracts. In addition, the target company may have specialized knowledge of local market conditions, including existing relationships with municipalities, land owners, developers, subcontractors, and suppliers. These inventory positions, local market knowledge, and relationships could take several years to develop through D.R. Horton’s own startup efforts.

Major acquisitions

In 2012, D.R. Horton (DHI) acquired the homebuilding operations of Breland Homes, which operates in Huntsville and Mobile, Alabama, and along the coast of Mississippi.

In 2013, D.R. Horton (DHI) acquired the homebuilding operations of Regent Homes for $34.5 million in an all cash deal. Regent Homes operates in Charlotte, Greensboro, and Winston-Salem, North Carolina. The assets acquired included 240 homes in inventory, 300 lots, and control of 600 additional lots through option contracts. Regent Homes closed 463 homes and generated home sales revenues of $69.4 million during fiscal 2014.

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In May 2014, D.R. Horton (DHI) acquired the homebuilding operations of Crown Communities for $209.6 million in cash. Crown Communities operates in Georgia, South Carolina, and Eastern Alabama. The assets acquired included approximately 640 homes in inventory, 2,350 lots, and control of approximately 3,400 additional lots through option contracts. Crown Communities closed 721 homes and generated home sales revenues of $187.7 million for D.R. Horton (DHI) during fiscal 2014.

The latest acquisition was in April 2015 when D.R. Horton acquired the homebuilding operations of Seattle-based Pacific Ridge Homes for about $72 million in cash. This acquisition will help D.R. Horton (DHI) to expand in the Northwest US. The homebuilding assets acquired include approximately 350 lots, 90 homes in inventory, 40 homes in sales order backlog, and 400 lots through option contracts.

D.R. Horton is likely to make further acquisitions

D.R. Horton (DHI) is expected to continue to make strategic acquisitions of other companies or their assets in the future to take on the competition from other major homebuilders such as Lennar (LEN), Pulte Group (PHM), and Toll Brothers (TOL). Having said that, the company is not expected to make any aggressive acquisitions going forward.

Investors who are interested in trading the sector as a whole should look at the SPDR S&P Homebuilders ETF (XHB).

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