Does anyone have a view about private cemeteries?

November 08, 2022

by a searcher from Fundação Getulio Vargas, São Paulo - Escola de Administração de Empresas de São Paulo in São Paulo, SP, Brasil

Would that be a good thesis for a Search Fund to explore?
Yes, it is not necessarily an appealing industry, but might be a good business. Of course an indispensable need...
I'd love to hear your thoughts / experience with that

2 Likes

15 Replies

122 Views

Replies

Reply by a searcher
from Wayne State University in Linden, MI 48451, USA

I am a licensed Funeral Director/Embalmer and have been in the death care space for 30+ years, everything from an employee, owner, lender, broker, consultant, receiver, etc.. If you know what you are doing, there is opportunity in this space, especially if you have patient investors that are looking more for income than growth. I am currently rolling up funeral homes, cemeteries, and crematories through my company Clearstone Memorial Partners. I currently own 17 locations in Oregon and am closing on 8 more this month in another state and one more in Oregon. Cemeteries by themselves are not something I would focus on unless they have a crematory or a funeral home on their grounds (Or room to build one). The public is rapidly moving away from burial and instead they are choosing cremation and many families do not then bury the cremated remains in a cemetery. Cemeteries require a strong preneed sales program, as most do not make enough money just serving at-need families. As mentioned in a previous response, Cemeteries are forever, and a percentage of each sale has to be deposited in a perpetual care trust, you can not touch the principal and the income can only be used for the care and maintenance of the cemetery. This is because if you do your job right, you will sell out all your spaces (sources of income) so you need to make sure there is enough money to care for the grounds once everything is sold. Prices are currently elevated from the low interest rates the past several years (although you typically cannot mortgage a cemetery but their values got inflated along with funeral homes), plus the increase in deaths due to covid have distorted the revenues for the past 2 years. Most Funeral Homes and cemeteries are coming off record numbers of deaths and revenues. In my opinion many of these deaths were “pulled forward”, elderly or immune compromised individuals that probably would have died in the next 2-3 years but passed early due to covid, so I believe there will be reversion to the mean, and we may actually see a lower than normal death rate sometime in the next 1-3 years. There is currently a lot of money chasing few deals as most private equity firms want larger acquisitions,( $3-4 million EBITDA+ for an initial platform) and there just are not that many large operations out there. The nature of the business is that most are still mom and pop with one or two locations with revenue around $1 million. It is also a "small industry" in that most of us know each other, or knows someone who knows someone, so reputation is everything. Most owners hate the public companies and the private equity firms in the space as they come in raise prices, cut staff, neglect the facilities and vehicles, etc.. Which on paper looks like a good idea, but rarely works. They get rid of the guy/gal who has been there for 20 years and hire a kid just out of school for 50% of the salary, but what they never seem to understand is this is a relationship based business and the long term employee they replaced was responsible for many families using that location, so now those families go elsewhere, and the public co/PE firms response is to raise prices to make up for fewer services, this then drives more families away. Many owners will turn down a higher offer from the public companies to sell to an individual/private buyer if they like them, they want to make sure the families in their community are treated as more than an entry on the P&L. Almost every state requires each location to have a licensed manager, so if you are not licensed, you will be very dependent on your employee (your licensed guy walks out, what are you going to do, shut down until you can hire a new licensee?-sorry but death doesn’t wait so not an option). Now, with all that being said, if you are willing to put in the time and effort to acquire locations one or two at a time, charge a fair price, provide excellent service, reinvest in your facilities and treat your employees well you may be able to grow to the size a P.E. firm or public firm wants over time and there is a nice arbitrage play when it comes time to sell. I typically buy at 5-6X EBITDA (for the Real Estate and operating business), and I have recently turned down an offer of 10X, as I am not ready to sell, and my investors are happy with their preferred dividends.

Reply by an investor
from Universidade Católica Portuguesa in Lisbon, Portugal

The first time someone asked me to look at the funerary industry, I had the some perception you did, not necessarily the most appealing one. But with time, what I realized is actually, although there are some good and sophisticated players in the industry there are also several that provide a very bad service to people in their hour of need. So I've become more and more a fan of looking at this kind of business.
Some things to consider:
- Available space in the cemetery vs. take rate
- Local regulation
- Service area - most of them tend to be regional, so which area do you service
- Added services included
- Historical commitment - how much has been sold that you need to service
- Competition not only other cemetery's but crematoriums, etc...
- Services that you provide
- Real Estate value and arrangements
- Revenue strategy, how do you charge

Ultimately I do tend to agree that their other businesses in that value chain that may prove easier to manage and grow, but don't necessarily think this is a bad one.

+13 more replies.

Join the discussion