Three of the country’s biggest developers, Daiwa House, Sekisui House and Sumitomo Forestry, have approached multiple American companies
Three of Japan’s biggest developers are “aggressively” shopping for housebuilders to buy in the US as they hunt growth outside their shrinking domestic market. Daiwa House, Sekisui House and Sumitomo Forestry are all actively searching for US acquisitions and have approached multiple potential targets, according to four M&A bankers and lawyers familiar with the matter.
The Japanese groups have market capitalisations ranging from Y770 billion to Y2.7 trillion, or $5.3 billion to $20 billion, making numerous large US companies potential targets. However, two of the people said that the companies might initially opt for smaller acquisitions. “We are seeing more and more US housebuilders being aggressively courted by would-be Japanese buyers,” said one banker familiar with the companies involved. Another said they expected at least one deal to be struck before March when Japan’s financial year ends.
US homebuilders have seen their stocks rise in recent weeks, recouping most of the losses in the previous four months, according to analysts at BCA Research. US house prices rose for the eighth consecutive month in September, as lean housing inventory continued to boost demand despite high mortgage rates.
“To the extent that elevated mortgage rates are dampening existing homeowners’ willingness to sell, they are also reducing the supply of existing homes for sale on the market. At the same time, a shortage of housing is providing a floor beneath construction activity. The latter could limit homebuilders’ pain amid a recession next year,” said the BCA analysts in a recent note to clients.
Faced with a declining population and glut of existing housing in their domestic market, the Japanese groups are willing to act despite the fact that the yen is close to one of its weakest points in decades, which would make US acquisitions relatively expensive. Last year, fewer than 800,000 babies were born in Japan and the population of 125 million shrank by more than 500,000. According to a 2018 estimate, there are 8.5 million empty houses in Japan, with that number expected to swell to 20 million over the next two decades.
The three groups already have operations in the US. Daiwa House went into the US in 1976 and built 10,000 homes before pulling out nine years later. It went back in 2011 and established a subsidiary in California. Sekisui House said it had built 2.6 million homes but fewer than 40,000 of those were outside Japan. The company operates in China, Singapore, Australia, UK and entered the US market in 2017.
Sumitomo Forestry has grown to become the ninth biggest homebuilder, measured by annual completions, in the US over the past 20 years and said it had expanded its business by acquiring equity in local partner companies and making them subsidiaries. “We believe that demands for housing in the US will continue to be strong, therefore, in addition to the organic growth of our existing affiliates, we will consider acquisitions in the future if we can find a partner that offers good terms and shares our philosophy, while carefully monitoring market trends and the timing,” said Sumitomo Forestry.
Daiwa said, “We will continue to consider M&A in the US if we have the opportunity, and we are considering various projects.” Sekisui said it was hunting for acquisitions in the US but said no deal was at an advanced stage.