Every now and then, I run into a private builder with an interest in going public who asks my opinion on the state of the market, and whether the window for an initial public offering may be opening. I've had fewer of those conversations in recent years, but I did have one recently.
Certainly, today my analysis of the prospects for a new, small-cap IPO would be grim. The five largest public home builders — we call them Supernovas — are bigger and more dominant today than at any time in history. Who wants to be compared to Pulte and Lennar? I can't think of a more effective way to make even a sizeable company appear infinitely small.
Moreover, there's no reason for a builder who would have reasonable prospects for success on Wall Street to do it. Money isn't tight. It may cost more than the public builders pay, but not enough to preclude competing with them.
Larry Webb's WL Homes is now the second largest private builder in America.I know Webb has contemplated an IPO on numerous occasions. I asked him what he thinks of the idea today:
"Why would I want to put up with that crap? You spend an incredible amount of money to comply with the reporting requirements, then countless hours trying to convince people who know nothing about your business that you've got a company that's well run. If you don't land in the top five or show a rapid rise in the rankings, you don't even get covered. Most of the public builders today are just floating in nowhere land."
Seven public builders that were among the Top 25 in 2005 lost ground our rankings this year, including Brookfield Homes Corp., which dropped all the way from No.22 to 29, and William Lyon Homes, which slipped from No. 17 to 19. General Lyon is now trying to take his company private. Meanwhile, two of the three fastest growing builders — WL and Florida-based Mercedes Homes — are private.
Bottom line to those of you harboring Wall Street dreams: Are you nuts?