Business Combination to Introduce One of the Nation’s Fastest-Growing Homebuilders as a Publicly Listed Company in a Transaction Valued at $510 Million
New York, NY — LF Capital Acquisition Corp. (NASDAQ: LFAC)(“LF Capital”) announced that it has entered into a definitive merger agreement (the “Merger Agreement”) with Landsea Homes Incorporated (“Landsea Homes”) in a transaction valued at $510 million. Landsea Homes is a high-growth residential homebuilder based in Newport Beach, CA that is focused on entry-level and move-up price points in attractive markets throughout California and Arizona.
Post-closing, the combined company’s strong balance sheet will position Landsea Homes to expand its business both within its core markets and potential new high growth markets organically and via potential acquisitions. Upon completion of the transaction, the combined company will be named Landsea Homes Corporation and its common stock, warrants and units will remain Nasdaq-listed under the new ticker symbols “LSEA,” “LSEAW,” and “LSEAU”, respectively.
Landsea Homes was founded in 2013 by Landsea Green Properties Co., Ltd. (“LGP” orthe “Parent”), a publicly traded company listed on the Hong Kong Stock Exchange (HKSE: 106), to build homes exclusively for the U.S. domestic market. LGP will not receive any cash proceeds in the merger and is expected to own 67.4% of Landsea Homes at the closing of the merger.
Landsea Homes Key Investment Highlights•Growth-Oriented Homebuilder in Core Markets of California and Arizona:Focused on building entry-level and move-up homes in high-growth markets that reflect modern living and enhance a customer’s lifestyle. Strategically desirable portfolio of land positions and communities creates significant value.
- Differentiated Through its High-Performance Homes (HPH) Product Offering:Deliver home automation (through its strategic partnership with a “Big Five” technology company), sustainability and energy savings. The HPH platform is rooted in innovation that attracts today’s homebuyers.
- Favorable Growth Dynamics in the Real Estate Market:More homebuyers are entering the market due to COVID-related and work-from-home reasons, including better mortgage rates/prices, disliking current home layout or needing a larger home. Millennials havebecome the largest cohort of buyers in the U.S. and prefer customization options with new homes over renovated older homes.
- Robust and Proven Financial Profile:For the twelve months ended June 30,2020, Landsea Homeshad net orders of 1,302homes,932deliveries, 856 homes in backlogand generated $641 million in total revenue. Tangible bookvalue as of June 30, 2020was$484 million.
- Experienced Management Team with Entrepreneurial Culture:Deep expertise in executing acquisitions and developing high-quality communities.
“Landsea Homes has established a unique and differentiated homebuilding platform with significant growth prospects for the future,” said Scott Reed, CEO and president of LFCapital. “With a strong foothold in two high-growth real estate markets, California and Arizona, and an industry-leading program that provides a superior living environment through home automation, sustainability and energy savings, we believe this transaction will allow Landsea to reach its true growth potential. We look forward to working with the Landsea team as we introduce their compelling story to the public markets.”
John Ho, CEO of Landsea Homes, commented: “Landsea is revolutionizing the homebuilder industry by committing to home automation, sustainability and energy savings. Our inspired homes are built in vibrant, prime locations where the consumer can connect seamlessly with their surroundings and enhance their local lifestyle, supporting our defining customer principle –‘Live in Your Element®.’Merging with LF Capital and becoming a public company is the right next step in our growth phase and an important milestone for our company. This transaction will enhance our ability to grow our market share, diversify across product offerings, strengthen our brand position and maintain an appropriate supply of land for future buildout. LF Capital shares our vision for growth and we are thrilled about our partnership.”
Under the terms of the Merger Agreement, LF Capital will acquire Landsea Homes for $344 million in total consideration, to be paid fully via 32,557,303 newly issued shares of LF Capital’s Class A common stock, representing an attractive price to tangible book value multiple of 0.84x. Assuming no redemptions by LF Capital’s public stockholders in connection with the merger, the combined company will have a pro forma equity value of $510 million, pro forma net debt of $121million, representing a conservative 16% net debt-to-net book capitalization ratio, and pro forma tangible book value of $608 million.
The boards of directors of both LF Capital and Landsea Homes have unanimously approved the proposed transactionand itis expected to close in the fourth quarter of 2020, subject to regulatory and stockholder approvals, and other customary closing conditions.
In connection with the proposed merger, LF Capital will seek an amendment to its existing public warrants, which significantly reduces potential dilution from the capital structure, such that at the closing of the merger, (1) each public warrant will entitle the holder thereof to purchase one-tenth of one share of Class A common stock instead of entitling the holder thereof to purchase one share of Class A common stock and (2) each holder of public warrants issued and outstanding immediately prior to the closing of the merger will be entitled to receive from LF Capital a one-time payment of $1.85 per public warrant as soon as reasonably practicable following the closing of the merger. The warrant amendment requires the approval of holders of at least 65% of the outstanding public warrants, and the closing of the merger is not conditioned on approval of the warrant amendment.
LF Capital has entered into certain forward purchase agreements(each, an“FPA Agreement”) with certain institutional investors (the “FPA Investors”), whereby the FPA Investors have agreed to purchase up to $35millionshares of LF Capital’s Class A common stock in the aggregate in the public markets at a price of up to $10.56 per share.The FPA Agreement was well-received by institutional investors and was oversubscribed. Pursuant to their obligations under the FPA Agreement, the FPA Investors have agreed to vote any shares of LF Capital’s Class A common stock purchased pursuant to the FPA Agreement in favor of the merger and related transactions. The FPA Investors have also agreed not to redeem those shares in connection with the approval of the merger or any proposal to extend the deadline for LF Capital to complete its initial business combination.
In connection with the transaction, LF Capital’s sponsor has entered into an agreement to surrender a portion of its founder equity to align with the long-term value creation and performance of Landsea Homes. In addition, LF Capital’s sponsor has agreed that a portion of its founder equity will vest only if the share price of the combined company exceeds $14.00 per share during the twenty-four month period following the closing of the merger.