Original article by: BUILDER Online
Virginia-based Stanley Martin Homes is forging ahead with an ambitious market expansion goal that it plans to meet via organic growth and acquisition, one company at a time.
Timing is everything. In February 2020, two top 100 U.S. home building companies—Reston, Virginia–based Stanley Martin Homes and Columbia, South Carolina–based Essex Homes—were pushing hard to close the deal that brought Essex’s operations and all of its employees under the Stanley Martin umbrella.
“We closed on Feb. 25 and had big plans for how to wildly succeed with the integration of over 200 new team members,” recalls Steve Alloy, president and CEO at Stanley Martin Homes, about the acquisition. Those plans—while still a success—shifted significantly when, within weeks, COVID-19 shut down all travel and closed the company’s offices. “If [the deal closing] had been three weeks later, it wouldn’t have happened,” says Alloy, later noting that, thanks to the pandemic-induced housing boom and the cultural fit of the two firms, “it turned out to be the greatest deal ever.”
Despite the uncertainty many home builders felt in March and April last year, 2020 turned out to be good for business but fairly quiet in terms of mergers and acquisitions within the industry. But the Stanley Martin and Essex deal was a notable one: The combination of the two companies added more than 1,000 closings to Stanley Martin’s numbers for 2020, resulting in an impressive 11-spot jump to No. 21 on the Builder 100 list with 3,436 closings.
Mutually Beneficial Partnership
Karl Haslinger, founder of Essex Homes and current regional president at Stanley Martin, jokes that in hindsight had he known how good of a year 2020 would be for home builders, he might have delayed selling. But just over a year later, he has zero regrets with where he and his company landed with Stanley Martin.
“When you get to a certain age, and it’s time to sell your company, you start realizing you only have so many windows to do things in,” he says. “At the time I was 64, and I’m 66 now. It was time to do something. I didn’t want to be 70 and risk going into another downturn.”
In looking for a buyer, Haslinger says taking care of his people—225 of them at the time—was a top priority. As soon as talks started with the team at Stanley Martin, he felt at ease. In fact, he never considered any other offers.
“With a big builder, like a Lennar or D.R. Horton, I’m not saying anything bad about them, but there are multiple overlaps in markets, which usually means people are displaced,” Haslinger says. “Steve and several of his top managers flew into Columbia, I believe it was December 2018, and literally the meeting and the conversation started out with, ‘If we buy Essex, we’re going to need all of your people. Do you have management and do you have people that will move over in the acquisition?’ Which was exactly what I wanted to hear, I wanted to hear somebody that wanted all of my people and had places for them and needed to have them. So the conversation really started about people and about corporate culture.”
According to Alloy, that kind of fit is exactly what Stanley Martin is looking for and is how it plans to grow its market presence via acquisition going forward. “Karl was really trying to figure out, one day as he retires, what will that look like? He wanted to protect everybody,” Alloy notes. “And because of the beautiful fit with us, there was no overlap. And because we were growing so fast, we needed all the corporate people he had. We wanted everybody. [His team members] recognized, ‘Wow, Karl really took care of us,’ so they had buy-in.”
For Alloy, his take on M&A is that “who the company is is more important than the geography.” That being said, the Essex deal was a home run in both areas as Essex was operating in five Southeast markets that were surrounded by Stanley Martin’s existing markets.
“They already had offices in Raleigh, Charleston, and Atlanta,” Haslinger says of Stanley Martin. “They started to look at where we’re at and immediately made the comment that ‘this fits like the hole in the doughnut.’ We covered the central missing piece of geography they were surrounding.”
Path to Growth
Despite the fact Stanley Martin was founded by Alloy’s father, Martin Alloy, and Stanley Halle in 1966, Steve Alloy never intended to work there. While Steve Alloy was studying at The Wharton School of the University of Pennsylvania, it was “during a time when there was a buying wave of real estate investment from Japan into the U.S., and Japan at the time was the new economy to take over the world,” he says. “So I studied some Japanese and went that direction, I thought my career was global. I never thought I’d be at a D.C.-based home building company that my father had founded. The only reason it changed is because the Japanese economy collapsed in 1990-91.”
In 1991, Alloy returned to the U.S. and became the land acquisition manager for Stanley Martin. Roughly six months later, the company realized it didn’t have the money to buy new land. “It was the best thing that ever happened to me because instead of getting laid off, I moved into a sales training role and sold houses on the floor.”
From there, he held other positions in departments throughout the company, which proved beneficial to prepare him for when his father stepped down in 1998. That’s when, at just 33 years old, Steve Alloy took over as president.
“I don’t know how many top 25 CEOs were shoveling curb, taking a fire hose into drainage pipes, and hauling refrigerators, but that’s what I used to do,” laughs Alloy, reflecting on his varied former jobs. “I’ve been in almost every role in the company. It’s incredibly helpful. Lots of people come up through the industry, but often they’re recruited into a management-level role. I have a lot of non-management roles on my resume in our industry.”
Alloy has an older brother and a younger sister, but neither of them have current involvement with the company. “None of us were really coming into the home building business,” he says. “It just happened that I shifted there, and it’s been fantastic.”
Positioned for Success
From its start in the ’60s until 2009, Stanley Martin Homes operated as a single-market family business, building in the Washington, D.C., area. Following that, it joined up with private equity in December 2009 to grow the company coming out of the downturn. While 50% private equity owned, Stanley Martin expanded into Richmond and Charlottesville, Virginia, and Raleigh, North Carolina, and it grew from 302 sales in 2009 to 862 sales in 2016. With a six-year time horizon, however, the private equity funds needed to be replaced come 2016.
In another bout of good timing, Stanley Martin joined Daiwa House Group, one of Japan’s largest home builders, in February 2017. The expiration of Stanley Martin’s private equity funds nicely coincided with the Daiwa House goal to expand into the U.S. single-family home business.
“We had hired a financial adviser to find a replacement for the private equity funds, and the adviser reached out to Daiwa House,” Alloy recalls. “In the early meetings, it became evident that they were the absolute best match.”
Alloy’s work experience and time spent in Japan—and what he calls a conversational grasp of the language—certainly didn’t hurt, but again, the deal came down to people.
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