Consolidation in the UK Homebuilding Sector - Is this the finale?

Implications:

If successful, the proposed merger between Taylor Woodrow and Wimpey will create the UK's largest housebuilder, delivering approximately 31,000 units a year. This will consist of 22,000 in the UK and 9,000 in the US, where both companies have long enjoyed a presence. Even within the UK, 22,000 units a year exceeds the number of homes completed by Britain's current largest housebuilders, Barratt (19,800) and Persimmon (16,700).

Both Taylor Woodrow and Wimpey have similar structures and operations. Both are less profitable than many of their peers and even when combined, their joint UK landbank will amount to a relatively modest 92,000 plots, less than both Barratt and Persimmon, each with 103,550 and 94,655 respectively.

Logistically, a UK homebuilder will find it structurally and managerially difficult to deliver over 30,000 units a year over a wide geographical area. This is particularly given the land aquisition, planning and building performance constraints increasingly faced by housing developers in the UK. Even in the US, where the market is larger, the land and planning difficulties are smaller and the building methods are different, there are only three companies that have delivered in excess of 30,000 units a year.

Persimmon or others may intervene with a bid for Taylor Woodrow which may provide shareholders with a greater return. However, if the Taylor Wimpey merger is concluded, it would create a huge gap between the UK's largest housebuilders (Taylor Wimpey, Barratt and Persimmon) and the rest, leaving smaller quoted developers such as Redrow, Bellway and Bovis Homes more vulnerable to takeover, as consolidation within the sector is likely to continue.

 

Analysis: Personal and industry views with reference to publications generally and Building Magazine particularly - issues 30.03.2007 and 05.04.2007.