On the heels of its $79.1 million purchase just over a month ago of a Houston-based launch-pad – Devon Street Homes -- to catapult into the high-growth Texas residential real estate and construction market, 15-year-old Woodstock, GA-based Smith Douglas Homes Corp. has filed for a $100 million initial public offering of its Class A common stock.

Smith Douglas's move to "go big" – the first traditional private builder IPO since Dream Finders filed in January 2021 – comes as national, regional, and local homebuilding operators jockey for a competitive edge in a market-by-market pecking order for access to customers, developed and undeveloped lots, trade crews, materials supplies, etc. Where each operator comes in that pecking order may well determine the degree and extent of each of their opportunities or threats for the coming three to seven years.

An additional catalyst for the IPO – a tighter-for-longer credit backdrop and higher-for-longer baseline bank borrowing costs are stressing traditional bank-line dependent builders and land developers – makes it an opportune time for bigger players with access to deep and/or patient capital to strike while weakened homebuilders are back on their heels.

Smith Douglas and its leadership team have earned high regard and respect among peers, trade colleagues, customers, and suppliers as an exceptionally led, superbly competent, and fiercely driven team that struck out on an accelerated growth path in its Southeastern market footprint six or seven years ago, and never looked back.

While founder Tom Bradbury has up until recently leaned toward a "closely-held" family-style organization, he simultaneously strove for a bold and enduring legacy for the Smith Douglas name. It may have been only a matter of time before a pivot from private operator to public enterprise would ensure he and his braintrust of the kind of enduring organizational impact they were inclined to put on their business roadmap.

Here's what the SEC filings say about management's plan for using proceeds of the equity offering:

We will only retain the net proceeds that are used to purchase newly issued LLC Interests from Smith Douglas Holdings LLC, which, in turn, Smith Douglas Holdings LLC intends to use as follows: (i) to repay approximately $    million of borrowings outstanding under our Credit Facility, which we refer to as the Refinancing (see “Underwriting (conflicts of interest)”), (ii) redeem all outstanding Class C Units and Class D Units of Smith Douglas Holdings LLC at par aggregating $2.6 million, (iii) repay $1.3 million in notes payable to related parties and (iv) the remainder, if any, for general corporate purposes as described herein and under “Certain relationships and related person transactions.” As of June 30, 2023, outstanding borrowings under the Credit Facility aggregated $10.0 million with $0.4 million in outstanding letters of credit. Subsequent to June 30, 2023, we borrowed an additional $71.8 million under the Credit Facility to partially fund the purchase price of the Devon Street Homes Acquisition. Borrowings under the Credit Facility bear interest at the Prime Rate plus the applicable margin, as defined therein, based on our leverage ratio and payable monthly (an effective rate of 8.0% as of June 30, 2023). For more information on the Credit Facility see “Management’s discussion and analysis of financial condition and results of operations—Liquidity and capital resources—Credit Facility.” We may also use a portion of the net proceeds to acquire or invest in businesses, products, services, or technologies; however, we do not have agreements or commitments for any material acquisitions or investments at this time.

With a long-simmering design to become a $1 billion, 4,000-completion homebuilder by mid-2024, Smith Douglas has charged up the private-homebuilder ranks, and now stands as a top-50 homebuilder, and adding its eight market – Houston – with the Devon Street Homes acquisition.

During the year ended December 31, 2022, we closed 2,200 homes as compared to 1,038 homes in the year ended December 31, 2017, representing a 16% CAGR over the last five years. In the same period, our revenue grew at a 26% CAGR from $240.3 million to $755.4 million." – SEC filings

For its story for Wall Street institutional investors, Smith Douglas will focus on what it regards as seven compelling competitive advantages and a track-record that illustrates how disciplined and well-executed its team is at availing of them.

They include:

• Efficient, schedule-driven manufacturing platform that drives strong construction cycle times and robust home closing gross margins
• Land-light business model that allows for both risk mitigation and enhanced returns
• Established presence in attractive, high growth markets
• Scalable platform well-positioned to expand in existing and new markets
• Differentiated ability to offer a personalized home buying experience to price-conscious homebuyers
• Veteran management team with track record of success and significant public company experience
• Conservative balance sheet and liquidity, with substantial capacity to drive growth

Together – with a customer-centric baseline promise – the Smith Douglas team, led by its founder and self-anointed "chief culture officer" Tom Bradbury and ceo, president and vice chairman Greg Bennett, has knitted together an ambitious vision, a growth strategy, a systems-based operational platform that contains a constant-improvement ingredient that keeps pace with execution, reliably generating results.

Now comes the exciting – and nerve-racking – part for the Smith Douglas C-suite, who'll venture out over the next brief stretch of time doing a "dog-and-pony" show among institutional investors, looking to secure support to price in their offering at a level high enough to reach their raise goal.

Seeking Alpha IPO analyst and expert Donovan Jones offers this concluding commentary on the Smith Douglas public offering:

SDHC is seeking U.S. public capital market investment to fund its growth plans and provide for working capital.

The firm's financials have generated declining topline revenue growth, lowered gross profit and gross margin, reduced operating profit, and less cash flow from operations.

Free cash flow for the twelve months ending June 30, 2023, was $138.0 million, an impressive result.

Selling, G&A expenses as a percentage of total revenue have trended lower as revenue has increased; its selling, G&A efficiency multiple fell to 0.6x in the most recent reporting period.

The firm currently plans to pay no dividends and to retain future earnings for reinvesting back into the firm's growth and expansion capital requirements.

SDHC's recent capital spending history indicates it has spent lightly on capital expenditures as a percentage of its operating cash flow.

The market opportunity for homebuilding in the United States is large and growing but is subject to macroeconomic factors such as interest rates and employment.

J.P. Morgan is the lead underwriter on the IPO, and its IPOs have performed reasonably well in the past 12 months.

Business risks to the company's outlook as a public company include continued higher interest rates that increase the cost of financing, a weakening job market as employers have been reducing job openings and quit rates have been dropping. – Seeking Alpha

In an earlier era and a different part of the housing cycle, Smith Douglas' exploration of access to public capital markets included an initiative in 2017 to raise capital via a hybrid public bond/debt offering whose terms resemble those of other large private operators like Ashton Woods, David Weekley Homes, Shea Homes, etc.

When that 2017 foray did not arrive at a place Smith Douglas strategists felt would work to their advantage, they put their heads down, executed on their highly-evolved operational model and built it into an entity-level platform capable of wash-rinse-repeat outperformance in the firms' seven markets in four fast-growing states. Adding Russell Devendorf as executive VP and CFO to the team five years ago brought public homebuilding enterprise finance expertise and experience aboard, suggesting even then that a return to the public capital markets would come when the moment was right.

Now, with Houston and beyond at the Western edge of an expanded operating footprint, the vision is bigger and bolder than ever before. Getting to 4,000 homes and $1 billion in revenue by founder Tom Bradbury's 80th birthday on July 15, 2024 may have been the goal in the last five-year plan.

According to president and ceo Greg Bennett, Bradbury has no immediate plans to bow out of the business community he's made his home for five decades.

He says he's giving me a plan that will take him to 100," Bennett told me in early August. "So I'm eager to hear what it is in the coming months."