Florida-based Giant Mercedes Homes, 56th in Professional Builder''s 2000 rankings with revenue of $256 million on 1890 closings in 1999, managed an achievement this month that alluded just about every other builder on the Giants list all year: an acquisition.
Mercedes pulled off a green field expansion into the Charlotte, N.C., market in March, hiring former Torrey Homes division president Ricky Beauchamp to head the operation. Within three weeks, Beauchamp identified Garry D. Smith Homes as an acquisition target. Smith built 130 homes in 1999 for nearly $13 million in revenue. Mercedes closed on the purchase of the Charlotte firm on July 7, 2000.
Most importantly, Smith has seven land positions to go with the four Beachamp has already lined up for Mercedes, so the Florida builder will have plenty of market presence next year, when the firm begins to phase out the Garry D. Smith Homes operating identity.
Privately-held Mercedes has not revealed the purchase price, but principal and vice president of operations Scott Buescher says it's a cash deal with an interesting twist:
"We'll make money the first year of operations in Charlotte, just by virtue of the way we structured the buyout. We don't pay it all up front. And we're actually buying Garry's company through our employee stock option plan (ESOP). I don't want to give you all the details, but it's a deal that has big tax savings in the way we wrap our company around the acquisition. It's going to be a trick we have up our sleeve that we hope to use elsewhere (in the future)," says Buescher.
Smith will stay on board as a Mercedes vice president, running construction operations and land acquisition in Charlotte. "This is a deal that's really win-win," says Buescher. "Garry is a young guy with kids who needs to spend more time with his family. And he was beginning to feel uncomfortable with the risk involved in owning the firm. Everything he had was tied up in the business. Over time, he'll get very good money from the eight years he spent building the business.
"And we get a jump start on our operations in Charlotte that will probably put us two years ahead of where we'd be without the acquisition."
Division president Ricky Beachamp sees enormous advantages in the deal he helped put together. "We've acquired a subcontractor base, land positions, and employees. We're up and running. There's a high comfort level between Garry and the Buescher family," says Beauchamp. "They have very similar operating styles, and Garry was operating at the price point-$95,000 to $150,000-where Mercedes cut its teeth in Florida."
Mercedes plans to open its first models under its own identity in December, but in the meantime, they'll continue to sell houses under the Garry D. Smith logo. "We'll stay at that price point for a year or so," says Buescher. "We're comfortable there. But down the road, we'll spread out. We've had success at a lot of different price points. We think versatility is a big key to success today. We won't allow anyone to type-cast us for long."
Beauchamp says Mercedes is negotiating to acquire lot positions in Huntersville, Cornelius, Mooresville, Rock Hill, Fort Mill, and other hot suburban markets. Traditional nieghborhood design is a hot item in Charlotte, and the Smith acquisition also gives Mercedes a head start in developing product for that type of community.
"Garry already has one neighborhood in Huntersville in a TND," says Buescher. "He's got the product already developed. We're starting (construction of) models next week."