"The smaller the homebuilder, the more likely it is they will merge," said Erik Oja, an analyst with S&P Capital IQ. "Some of the smaller ones include Meritage Homes (MTH), M.D.C. Holdings (MDC), KB Home (KBH), Beazer Homes USA (BZH) and Hovnanian Enterprises (HOV)."
In the latest deal, Standard Pacific will carry out a 1-for-5 reverse stock split, then issue 1.019 of its shares for each share of Ryland, the companies said. Upon completion, Standard Pacific investors will control about 59% of the new company, which would have had total revenue of $5.1 billion in the year through March 31. Standard Pacific stock was rising by 7% in midday trading Monday.
"Combining two industry leaders with nearly 100 years of homebuilding experience between them puts us in a strong position to benefit from the continued housing market recovery," Standard Pacific Chief Executive Officer Scott Stowell said in a statement.
When growth in housing construction begins to slow, more companies will feel pressure to cut costs through combinations, Oja said.