Another mega-deal was announced last week that I don’t want to withhold from you. Japanese construction company Sekisui House and US homebuilder M.D.C. Holdings announced the signing of an acquisition agreement on January 18, 2024.

In the agreement, Sekisui House has agreed to pay $63 USD in cash for each of M.D.C.’s shares to the shareholders. The takeover offer values the US construction company at a staggering $4.9 billion USD (around 4.5 billion euros).

But before I delve into the details of the acquisition, I would like to introduce the relatively unknown German construction companies involved.

The companies involved in brief The Sekisui House Ltd., founded in 1929, is a leading construction company in Japan with headquarters in Osaka, Japan. Since its founding, Sekisui House has delivered approximately 2.6 million homes worldwide (as of January 31, 2023). The company is present in Japan, the US, Australia, Singapore, the UK, and China.

In the early 1970s, the company, which specializes in prefabricated house construction, was also active in Germany, but failed due to high production costs. After that, the German subsidiary of the Japanese construction company focused on real estate leasing, but this was completely abandoned in the early 2000s.

Sekisui House employs over 29,000 people worldwide and generated a revenue of 2.93 trillion Japanese yen (JPY – equivalent to around 18 billion euros) in the 2023 fiscal year. The operating profit (EBIT) in 2023 was 273 billion JPY (1.7 billion euros).

M.D.C. Holdings Inc. was founded in 1972 and is headquartered in Denver, Colorado. The holding company includes various subsidiaries that are active in construction, mortgages, and insurance.

The construction business of M.D.C. Holdings operates under the name Richmond American Homes. This subsidiary is one of the largest homebuilders in the US and has sold over 240,000 homes since 1977. This puts Richmond American Homes among the top 10 US construction companies.

Richmond American Homes has branches in Alabama, Arizona, California, Colorado, Florida, Idaho, Maryland, Nevada, New Mexico, Oregon, Pennsylvania, Tennessee, Texas, Utah, Virginia, and Washington.

M.D.C. Holdings has just over 1,600 employees and generated an annual revenue of $5.7 billion USD (around 5.24 billion euros) in 2022. The EBIT in 2022 was $774 million USD (around 711 million euros).

Further details of the takeover offer The takeover offer of $63 USD in cash includes a premium of 19% based on the closing price of M.D.C.’s stock on January 17, 2024, the last trading day before the announcement of the takeover. If you hold M.D.C. shares in your portfolio, you will likely have been pleased with this jump in price.

The Japanese have long set themselves the goal of expanding abroad. The US market is particularly interesting in this context, as demand for high-quality homes remains high.

After the completion of the acquisition, Sekisui House, which is already present in the US market, will rise to the top 5 among US homebuilders.

„This exciting acquisition of M.D.C. represents a significant development in Sekisui House’s strategy […]. This transaction is directly in line with our stated growth strategy in North America and will create a more resilient portfolio for Sekisui House,“ said Sekisui CEO Yoshihiro Nakai in a comment on the acquisition.

This was the market’s reaction The price of M.D.C.’s stock rose sharply on January 18, 2024, the day the takeover offer was announced. It increased by 18.4% and closed at $62.84 USD after the closing bell at the New York Stock Exchange (NYSE).

This put the price just below the $63 USD offered by Sekisui House. Investors apparently believe that the deal will go through without any problems.

The Sekisui House stock, on the other hand, saw a decline at the Tokyo Stock Exchange, losing 0.9% and closing at 3,306 JPY on the past Thursday. This slight loss indicates that investors consider the US acquisition to be too expensive.

What’s next The transaction still requires the approval of M.D.C. shareholders by tendering their shares. In addition, approvals from the relevant supervisory authorities must be obtained and other usual conditions must be met.

The companies involved expect the transaction to be completed in the first half of 2024.