Small-cap homebuilder Century Communities (CCS) is acquiring micro-cap homebuilder UCP (UCP).
UCP shares will receive $5.32 in cash and 0.2309 of a newly issued shares of Century common stock. The implied value to be received by UCP's stockholders in the merger is $11.35 per share based on yesterday's closing prices, a 22% premium, and UCP's stockholders would own ~16.4% of the combined company on a pro forma basis.
The combined company will be in 10 states, 17 markets and 117 communities, with revenues of more than $1.3 billion and inventories of more than $1.2 billion. It will own or control ~25,000 lots and will have a backlog in excess $450 million. The companies have essentially no geographic overlap. The merger is expected to be accretive to the company's 2018 earnings per share as a result of revenue and cost synergies and economies of scale.
The homebuilding market is fairly fragmented and this tie-up is between two of the smaller players. The large homebuilders have the most access to capital and scale, resulting in enhanced profitability.
UCP is being acquired at ~1.0x book value. This is seemingly an attractive price for Century Communities as the average publicly traded homebuilder trades at ~1.3x book value. UCP was trading at just under ~0.8x book value yesterday.
Beazer (BZH) and Hovnanian (HOV) are the only other two homebuilders trading below book value, reflecting their sub-par balance sheets.