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Regional Homes acquisition by $SKY
  • $SKY has just announced its intent to acquire the 4th largest HUD manufacturer, Regional Homes (‘ReG’).

  • Regional Homes will add 3 manufacturing facilities (on top of the current 44) but will also add 43 retail locations. Currently, SKY operates under 31 retail locations expanding its retail and direct to customer presence.

  • Homes sold in 2022 are ~5,000 with estimated revenue of $523M. Houses sold are ~19% of units sold by SKY so the transaction, all else equal will increase market share from 20.4% to approximately 24.3%.

  • Regional Homes has ~1,200 employees translating to $435.8k revenue per employee. In contrast, SKY’s similar metric is $338.5k (for FY23).

  • SKY looks for procurement synergies and digital marketing leverage while it also expands its presence in Alabama which is the 3rd largest state for manufactured housing (according to press release). SKY plans to increase penetration in the market.

  • ReG EBITDA margin stands at 16% Vs 20.9% for SKY in FY23 & 14.6% for CVCO in FY23. Even though the deal appears margin dilutive, ReG is still more profitable than the #3 player (CVCO) ➡ 40-60 bps margin decretive per call for 6 months to 12months post acquisition.

  • On a TTM basis revenue is expected to be 10-12% lower (than $523M) due to softening market. EBITDA is expected to be fairly even driven by the govt related business. It could go down a bit in the short term.

  • Transaction EBITDA multiple stands at 5.5x (excludes earn out –future govt contracts related) which is lower than 6.6x of $CVCO and 6.1x of $SKY. So overall, price to be paid seems fair.

  • Estimated Returns on Capital (based on FY22 figures) and total purchase price 13.8%, which is below 22.8% of SKY on a TTM basis. Nonetheless, it is above the cost of capital, so at first glance it is value adding.

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