Sekisui House Ltd. announced a $4.9 billion agreement on Thursday to buy MDC Holdings Inc. — a purchase that will help it meet a key target in its ambitions to diversify beyond Japan. It's likely the biggest U.S. purchase of a homebuilder by a Japanese company, according to investment banker Margaret Whelan. 

Asian buyers have been active in the U.S. homebuilding market for a decade, purchasing at least 29 builders or related companies in the country, according to Whelan, who founded Whelan Advisory. 

But the appetite among Japanese buyers in particular is growing to include even bigger deals as they increase in size and struggle with a declining population at home. Whelan said she'll announce a separate transaction next week involving a Japanese company purchasing a regional homebuilder.

"They're taking it to the next level," she said. "You're not moving the needle by buying smaller companies."

Homebuilders in the U.S. have ridden a wave of heightened interest in newly built properties as tight inventory leaves buyers fighting over scraps. But scale has been key for builders seeking to offer mortgage-rate buydowns and lure in customers. That's fueled deals even among U.S. companies.

Buying spree

Sekisui House Chief Executive Officer Yoshihiro Nakai said at a briefing Thursday that the company was done with large-scale acquisitions for the time being. Since 2017, the Osaka-based company has snapped up U.S. builders including Woodside Homes, Holt Homes and Chesmar Homes. Other large Japanese builders like Daiwa House Industry Co. and Sumitomo Forestry Co. have also been active in the market in recent years.

Shares of Sekisui House rose as much as 2.9% on Friday morning in Tokyo. The stock has gained 40% in the past year. MDC closed up 18% in New York Thursday. 

As part of the Sekisui deal, MDC shareholders will receive $63 a share, or about 19% more than the closing price on Wednesday. The purchase, slated to close in the first half of this year, will give Sekisui House operations in heavily populated states including California, Texas and Florida. 

The deal may help drive Sekisui's long-term earnings potential given growth in the U.S. single-family housing market, Citigroup Inc. analyst Masashi Miki wrote in a note, adding that the larger-than-expected acquisition will weaken the builder's financial position in the near term.

Overseas bets

The latest transaction is part of a broader wave of overseas investment by Japanese companies over the past several years, propelled by concerns about limited prospects for domestic growth thanks to the country's accelerating population decline. The announcement is just weeks after Nippon Steel Corp.'s proposed takeover of United States Steel Corp. Other big deals in recent years have come in fields as diverse as food and beverage to pharmaceuticals.

Japanese investors have also been buying up property abroad, even as the yen weakens.  

Japan's exchange rate has steadily depreciated in recent years, making overseas purchases costlier. The yen sank some 27% against the dollar over the three years through the end of 2023, the biggest drop among major developed-world currencies, according to data compiled by Bloomberg.

"I think we'll continue to see Japanese-based builders active in the U.S. market as they look to supplement lower domestic growth and declining population growth," Bloomberg Intelligence analyst Drew Reading said.