Death is anything but a dying business as private equity pours into the $23 billion funeral home industry

Private equity firms are investing in healthcare from the cradle grave, and in that second category quite literally. A small but growing percentage of the funeral home industry — and more broadly death care the market — being manipulated by private equity-backed companies attracted by high margins, predictable earnings, and the eventual deaths of tens of millions of baby boomers .

In many ways, the funeral home industry is a prime target for private equity, seeking to find markets that are highly fragmented and could benefit from consolidation. By bringing together funeral home chains, these companies can take advantage of scale in purchasing, improve marketing strategies, and share administrative functions.

According to industry officials, about 19,000 funeral homes make up a $23 billion industry in the US, at least 80% of which is still privately owned and operated — mostly parent and pop businesses, with a few regional chains participating . The remaining 20%, or about 3,800 homes, are owned by the funeral home chain, and private equity-backed companies own about 1,000 of them.

Consumer advocates worry that private equity firms will follow the lead of publicly traded companies that have built large chains of funeral homes and raised prices for consumers. “The real owner being served is not,” said Joshua Slocum, executive director of the Funeral Consumer Alliance, a nonprofit that seeks to educate consumers about funeral costs and services. It’s not the grieving family paying the bills – it’s the shareholders.

Although data on funeral prices are not publicly available, survey of local branches Consortium has found that when publicly traded or private equity-backed chains acquire individual funeral homes, prices tend to follow.

For example, in Tucson, Arizona, when a local owner Sold Angel Valley Funeral Home in 2019 for the private equity-backed Foundation Partners Group, the price increased from $425 to $760 for a cremation, from $1,840 to $2,485 for a no-burial people watching or visiting and from $3,405 to $4,480 for a full, economical funeral.

In Mesa, Arizona, the sale of Lakeshore Mortuary to the publicly traded funeral home chain Service Corporation International led to an increase in cremation prices from $1,565 in 2018 to $1,770 in 2021, burial prices from $2,795 to $3,680 and funeral savings from $4,385 to $5,090.

“We believe our pricing is competitive and reasonable across the markets in which we operate,” a Service Corporation International official said in an email.

Details of those price hikes were provided by Martha Lundgren, a member of the Arizona Funeral Consumer Union Board of Directors. She said the funeral home acquisition led to the cancellation of price agreements negotiated on behalf of consumers who were members of the union. In 2020, cremation at the Adair Dodge Chapel in Tucson cost members $395, nearly two-thirds less than the standard $1,100 price tag. But after Foundation Partners Group acquired the funeral home, the membership pricing agreement was canceled and the price of direct cremation increased to $1,370.

Foundation Partners Group officials said the price increase partly reflected the cost of supplies, such as caskets, as well as increased labor costs. But most of the increases, they say, represent a move to a more transparent pricing system that includes administrative and transportation fees that other funeral homes add later.

“We don’t take advantage of the people in it when they’re not thinking clearly,” said Kent Robertson, the company’s president and chief executive officer. “It’s just not who we are.”

A major consolidation occurred in the US funeral home industry in the late 1980s and early 1990s, and again around 2010, said Chris Cruger, a Phoenix-based consultant to the industry. And acquisitions have come at a dizzying pace over the past two to three years. Many investors are appreciating the need for death care services in the coming years as the 73 million baby boomers, the oldest of which will be in their late 70s, continue to age.

“The demographics are absolutely in favor of everyone here,” says Cruger. Funeral homes already have attractive margins, and combining them into a chain to share administrative costs could boost profits even more.

Meanwhile, many funeral home owners have reached retirement age and no one in the family is ready to take over. A 2021 survey by the National Association of Funeral Directors found that 27% of owners plan to sell their business or retire within five years.

The desire to sell and the investment money poured into the sector has pushed funeral home prices to new heights. Before private equity turned to funeral homes, they were selling for three to five times their annual revenue. “I am listening to seven to nine now,” said Barbara Kemmisexecutive director of the North American Cremation Association, a trade group for the cremation industry.

The value of funeral homes lies in more than just their existing assets. Funeral home directors are often an integral part of their communities and have built considerable goodwill with their neighbors. So when corporate chains buy out these homes, they rarely change names and often keep the old owners around to keep the transition smooth.

Tony Kumming, president of NewBridge Corporation in Tampa, Florida, helps broker the sale of funeral homes. Many of his clients remain skeptical of big companies and will often take less money to sell to someone they believe won’t hurt their hard-earned reputation. Most former owners plan to live in the community and do not want their friends and neighbors to be mistreated. “I’m not saying someone will take half of what the other company is offering,” Kumming said. “But now there are two big issues for sale: Money and relevance.”

Five years ago, when Robert Olthof decided to sell his family’s funeral home in Elmira, New York, he contacted several large publicly traded funeral home chains. But when representatives from many companies visited him to pitch their offers, Olthof realized that none of the major chains dispatched people well versed in the service side of the business. “They sent their accountants and sent their lawyers,” he recalls. “Everything is about numbers, numbers, numbers. And I didn’t like that. “

Instead, Olthof sold to Greg Rollins, a former funeral home director who built a chain of 90 privately owned funeral homes across the Northeast. Rollins gave less money than the big chains have, but he knows what it feels like to wake up at 2:30 a.m. and put on a suit to go help a grieving family. You know what it’s like to bury a child.

Rob Olthof
Rob Olthof stands next to a portrait of his father, Robert, in this undated photo. Olthof sold his family’s funeral home in Elmira, New York, to a private owner after discovering that the major chains interested in bribing him were more focused on finances than face. business services.

Rob Olthof

“I can’t put a dollar value on how much it’s really worth to sell to someone who’s a funeral director,” says Olthof. “Because moving forward, your name will still be on the front of that building.”

Victoria Haneman, a Creighton University Law School professor who studies the funeral home industry, worries that new company ownership could wreak havoc on grieving families. “They don’t behave like normal, rational consumers,” she said. “They don’t do bargain shopping because death is considered an inappropriate time for bargain shopping.”

For most families, a funeral will be one of the biggest expenses they will ever incur. But they often participate in the shopping process with cognitive impairment due to grief and uncertainty about what is customary or appropriate.

Only one in five consumers visit more than one funeral home to receive a price list, according to a Survey in 2022 authorized by the Consumer Federation of America. And almost impossible to compare online—research unions and the Funeral Consumer Union found that only 18 percent of the funeral homes they sampled list prices on their websites. As a result, families often rely heavily on the expertise of a single funeral director, who has an incentive to sell them the most expensive options. As a result, consumers may be pushed into purchasing packages for open coffin funerals that include embalming and other services that increase costs and may not be necessary.

“Where will that kind of soaked, bagged, decorated, preserved corpse be in the future? I don’t know that the answer is ‘yes,'” Haneman said. “And I think there are investors who are betting that it’s not.”

Foundation Partners Group is a prime example. Backed by private equity firm Access Holdings, the funeral home chain five years ago switched to acquiring funeral homes with high cremation rates. The national cremation rate has increased steadily over the past two decades, with nearly 58% of families now opting for cremation instead of coffin burial. Foundation Partners expects that rate to reach 70% by 2030.

The company has acquired more than 75 businesses in states with high cremation rates, including Arizona, California, Colorado and Florida. Most of these funeral homes average more than 150 funerals per year.

“Without a marketing budget, they don’t have access to these different health and safety plans and benefits and things,” said Robertson, CEO of Foundation Partners. “And because we have the ability to drive marketing and other things, we also take that 150-call company up to maybe 200 calls.”

Robertson said the funeral home industry is different from other areas that private equity firms might consider investing in, describing it as a calling similar to working in a funeral home. cell care. Foundation Partners is lucky that their backers understand the services part of the industry, as well as finance, he said. “Private-equity firms are not necessarily known for having deep compassion for people. They are better known for their financial returns,” he said. “To have both is really important.”

Foundation Partners owns Tulip cremation, an online service that allows people to order cremation with just a few clicks — and without ever having to set foot in a funeral home. Tulip currently operates in nine states where Foundation Partners has funeral homes. The company hopes the service will eventually work nationwide.

Haneman says innovative approaches like Tulip are essential in the funeral home industry, which has remained largely unchanged in 100 years. “It makes no sense to me that the average cost of a funeral is $7,000 to $10,000,” she said. “People need less expensive options and innovation will get us there.” Tulip charges less than $1,000 for a cremation; The ashes are sent back to the family.

Other online cremation services are Burial, Smart Cremationand Lumen’s Cremation.

“Private equity investment is likely to go one of two directions: It will maintain the status quo and drive prices, or the purpose of the investment will be disrupted,” Haneman said. “And disruption promises the ability to bring more streamlined processes to market.”

KHN (Kaiser Health News) is a national newsroom specializing in the production of in-depth coverage of health issues. Along with Policy Analysis and Exploration, KHN is one of the three main activities in KFF (Kaiser Family Foundation). The KFF is an advocated non-profit organization that provides information on health issues to the nation.

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