| ALH Holdings’ consolidation game is a privately financed one led by (from left) Shalom E. Lamm, Jonathan Zich and John D. Hourihan -- three men with a plan and the capital to make it happen.
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In case you thought industry consolidation was ending, think again. Only this time, it’s a private game.
Over the past nine months, ALH Holdings of New York dropped hard cash to buy Atlantic Builders of Jacksonville, Fla., Bowden Building Corp. of Memphis, Tenn., and Mulvaney Group of Charlotte, N.C. Those are, respectively, No. 137, No. 183, and No. 184 on last year’s Giants list. Atlantic closed 690 houses last year. Bowden and Mulvaney were, likewise, local volume leaders in the value-driven low end of the pricing spectrum.
ALH is No. 59 in this year’s rankings, with $253 million in revenue on 1,915 closings, all on entry-level and first move-up houses. But who is ALH? What’s going on here?
ALH Holdings is the acquisitions arm of New York-based Lion & Lamm Capital, an international investment banking firm headed by Shalom Lamm, Jonathan Zich and John Hourihan, three men who do have a plan.
When you start to think globally, it all makes sense. As Lion & Lamm managing director Hourihan explains, "Capital is a commodity that chases opportunity and yield. There are a lot of people in this world, institutional investors in this country and wealthy individuals overseas, who believe our story."
Lion & Lamm tells them that American home building is a fragmented industry, ripe for consolidation. And that the time is right because all home builders (not just public companies) are now out of favor with investors enchanted by high-tech and dot-com stocks. They tell them builders are in a cyclical industry, on the down slope of the current cycle, and undervalued in relation to book and to their historic multiples. In short, a classic buy opportunity.
They also tell them that size does matter. And that Lion & Lamm can create a whole that is greater than the sum of its parts. Hourihan tells them that private investment now has an advantage when public home builders are out of the acquisition game.
How much money does Lion & Lamm have to pursue acquisitions by ALH? "This is going to sound arrogant, but for the right transactions, we have as much as we need," Hourihan says.
ALH’s strategy is to acquire market-leading entry-level and first move-up builders in Sun Belt states, beginning in the Southeast. The firm has established an operations headquarters in Jacksonville under the leadership of president and chief operating officer John Laguardia, a former executive vice president of Atlantic Gulf Communities in Miami.
"Some of these single-market home building companies can be acquired now for three times earnings, with an upside to go to a 10 multiple quite easily," Hourihan says. "There are also great opportunities to grow these companies in their local and regional markets by getting enough land out in front of them to keep them churning.
"This is very much like a manufacturing business," says Hourihan. "Capital turnover is important. We believe the demand is there, but for how long? Mulvaney has a budget to close 673 houses this year. Next year, we’d like to do 800. Mulvaney operates in four of the seven counties that make up the Charlotte market. Obviously, there’s an opportunity to grow in the other three."
ALH will continue to operate under the existing brand names of acquired companies, Hourihan says, because each has a strong identity in the local market. How many more deals will ALH do this year? "We’ll close another one in a southern city by the middle of this year. We’ve identified two more targets. Our next deal will bring us to 2,500 units a year. When we get to $350 million in annual revenue, we’ll have enough critical mass to start targeting larger, multiple market builders."
Hourihan concedes this is not an entirely new story: "We’re not the first to come up with a consolidation strategy. Fortress Group comes to mind, but we think we can do it better with private rather than public financing."
ALH certainly bears watching. And if you’re a home builder in the Sun Belt, wondering what your end-game strategy should be, now that the big public builders have stopped calling, this might be it.
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