Walker & Dunlop (NYSE: WD) has grown rapidly in recent years, and while some of the growth has come organically, much of it is due to a series of value-adding acquisitions. In its 2020 year-end earnings report, Walker & Dunlop gave investors some pretty ambitious targets management hopes to achieve by 2025, and given the company's track record, it's fair to assume that acquisitions are going to be a big part of the strategy.
Well, we just learned that Walker & Dunlop is making a pretty large acquisition by its standards, which could give the company's growth aspirations a big boost. Here's a rundown of the details and why investors seem to be so excited about this deal, as evidenced by the stock's reaction.
Walker & Dunlop's latest acquisition
Walker & Dunlop is acquiring Alliant Capital and its affiliated businesses for a total of $696 million, including $351 million in cash, $155 million in assumed debt, $90 million in stock, and a $100 million earn-out.
Alliant Capital focuses on affordable housing and has participated in the development of more than 100,000 affordable housing units. The company is one of the largest investment managers that focuses on low-income housing tax credit syndication and manages $14 billion in client assets.
The business is expected to add $90 million to $100 million to Walker & Dunlop's revenue in 2022, mostly in the form of asset management fees, which add to the predictable income already generated by the company's massive service portfolio. It is also expected to add at least $0.45 to next year's earnings per share. The merger is expected to be finalized in the fourth quarter of 2021.
Why are investors so happy?
For one thing, affordable housing is a high-potential market. With skyrocketing home prices in the United States, and the accompanying rise in rent prices, the need for affordable housing is a major issue. Affordable housing lending is a key focus of Walker & Dunlop's growth plans as well. This acquisition instantly makes Walker & Dunlop one of the leaders in commercial real estate asset management and increases its presence in the affordable housing market.
Second, Walker & Dunlop has a clear history of making acquisitions that add value to the company relative to their cost. At nearly $700 million, this is a rather large acquisition by Walker & Dunlop's standards. The company's entire market cap is just $3.5 billion, and its most recent acquisitions haven't been close to Alliant's size, so this one could be a major needle mover if it works out well.
Finally, this acquisition alone helps Walker & Dunlop achieve one of its 2025 goals. In its Drive to '25 presentation, one of the company's goals was to increase its assets under management to $10 billion from the current level of $2 billion. This acquisition alone adds $14 billion to the total.
In fact, this is such a major acquisition for the company that CEO Willy Walker referred to it as a "true game changer for Walker & Dunlop" in the press release announcing it.
The Millionacres bottom line
Walker & Dunlop has grown dramatically under Walker's tenure and is now the leading multifamily commercial real estate finance company. However, Walker has made it quite clear that his long-term vision is for Walker & Dunlop to become the premier commercial real estate player. Acquisitions like this can certainly help get it there.