Pacific Greystone Corp. to Purchase A-M Homes for Undisclosed Price
A Burbank home-building company has agreed to buy luxury builder A-M Homes in a deal that industry sources say could be worth as little as $50 million.
If that is the price--neither the seller nor the prospective buyer will comment--it would be a telling sign of the financial havoc the recession is wreaking in the development world: A-M, with sizable operations in Orange County, was worth nearly twice that just four years ago.
A-M’s majority owner, Jennings Group Ltd. of Australia, acquired 80% of the company for a reported $70 million in two stages during the building boom years of 1987 and 1988. That would have valued the entire company at $88 million then.
A-M founders James B. (Bart) Araujo and Michael Muench own the remaining 20% of the 13-year-old company.
The potential buyer, Pacific Greystone Corp., is a privately owned firm. Since it was founded last year, it has been assembling land in outlying areas such as Corona and Pleasanton, which is north of San Jose, and now owns about 800 lots but has not begun construction.
A-M Homes, with 100 employees and about 1,000 lots, reportedly has remained profitable during the recession but has seen its revenue shrink from $247 million in 1990 to $132 million last year.
One development industry consultant estimated the privately held company’s pretax profit last year at $7.9 million, compared to an estimated $14.8 million in 1990.
On the plus side for the potential buyer, the company has a $160-million credit line from its banks.
A--M, based in Santa Barbara, has its largest division, with about 60 employees, in Newport Beach. Its current inventory includes about 600 lots in six Southern California developments and 400 more in six developments in Northern California.
The company has $40 million in debt. Adding that to a $50-million purchase price would value those lots at an average of $90,000 each, about 28% less than the $125,000 average that prime residential lots in Southern California sold for at the peak of the boom in 1989.
Jennings, caught up in economic problems of its own as Australia struggles with a major recession, has begun selling off foreign holdings in recent months to raise cash. It quietly put A-M Homes on the block about three months ago, spreading word of the sale in the New York investment community.
Jennings and A-M officials began negotiating with Pacific Greystone about a month ago. The Burbank development company is headed by Jack Harter, a longtime Southland residential building industry executive.
Warburg, Pincus Investors, a New York investment bank that raised $65 million in capital for Pacific Greystone, is its controlling shareholder.
Peter Kiesecker, Pacific Greystone’s vice president and treasurer, said Wednesday that the agreement with Jennings calls for his firm to acquire 100% of A-M’s shares and all of its California assets for a mix of cash and Pacific Greystone stock. The deal is scheduled to close on Sept. 30.
Pacific Greystone has fewer than 20 employees, he said, and looks at the deal not only as an opportunity to expand its presence in anticipation of an economic recovery beginning in the next year, but also to obtain a talented pool of managers who have survived the slump.
While Pacific Greystone plans to build so-called starter homes priced at $150,000 to $250,000, A-M historically has sought more affluent buyers able to invest equity from previous home sales. Its properties are typically in urban in-fill or luxury planned communities, including current Southern California developments in Lakewood and in the private Orange County community of Coto de Caza.
Prices for A-M homes now range from $275,000 to $400,000. Just three years ago, A-M homes in Southern California sold for an average price of nearly $500,000.
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