Why Private Equity?

June 10, 2024/Finance/

If you follow the Death Care financial markets, and even if you don’t but are involved in funeral service, it would have been hard for you to miss the number of “take-private” company movements from public company domains in the last couple of years.

I’m reminded of this by last week’s announcement that Park Lawn Corporation has agreed to sell its company in whole to a partnership that includes Homesteaders Life and Birch Hill Equity Partners Management. In essence, if that movement continues to closing Park Lawn will no longer be a publicly traded stock company but a company that is now owned by a partnership in a private configuration.

Over the past two years here is a short list of Death Care related companies that were either wholly spun into private companies or purchased out of a public company and turned into a private company via private equity purchases.

Dignity plc (Great Britain’s largest Death Care provider)

StoneMor (at the time America’s 2nd largest by dollar revenue funeral home and cemetery operator — it has now became Everstory Partners, a private company)

Batesville (the legendary casket manufacturing company was purchased out of public company Hillenbrand Industries by private equity and now stands alone as a private company)

InvoCare (Australia’s largest Death Care operator and Pet Crematory operator was purchased out of the public realm by American private equity firm TPG Global)

Funecap, a French private-equity backed company, has invested over $1 billion Euros ( US$1.08 billion) in purchasing over 300 crematoriums and funeral centers across Europe. Here’s a story on that.

I have lots of ideas of why this is happening but I’ll summarize only a few of them here.

Tom Anderson
Funeral Director Daily

The prevalence of private companies. While most people can only invest their 401k or their IRA’s in easy to invest public market companies, the fact remains that 91% of businesses in the United States are privately held. There’s a lot of advantages to holding a privately held business including the ability to make plans and move forward without having to publicly state each quarter, as you do with a public company, why and what you are doing. So, think about that for a moment. . . . most Americans have the ability to invest 100% of their retirement investments in only about 9% of the companies in existence.

However, those with extreme wealth or endowments, pension funds and the like have been able to invest in “Private Equity Funds” that invest in private companies. That’s changing somewhat because the “buy-in” to some private equity funds can be as low as $50,000 (or even less at some firms) now and more Americans can reach that number. More Americans en masse now becoming financially secure enough to become equity fund partners, coupled with the great expansion of wealth for those with extreme wealth, endowments, and pension funds, has greatly increased the capital available for these companies to invest.

Secondly, according to this article from Mission Wealth Management, the returns in the latest 20-year period for private equity investments has been 14.9% annually vs. the returns for Global Stocks (public companies) has been only 7.9%. So, if you can afford to invest in them, “Why not invest in private equity when the return on investment is almost double?”

Third. . . . . “Is there a more perfect business for private equity to invest in than funeral homes?” Funeral homes build reputation, business, income, and wealth over time. Generally, there are not highs and lows to the business and its a gradual climb to reaching what can be incredible cash-flow success. Investors in public companies, reflective of how we watch the stock markets each day, and in some cases each hour, are just the opposite with a thought process of most investors of “What have you done for me today”.

Being a private company with the opportunity to execute plans and strategies without having to answer to the public every day can be very beneficial to long-term slow-growth businesses such as funeral homes.

Finally, I don’t think Death Care acquisitions with private equity is anything new. Here’s an article from 1996 that touches on the fact that the Loewen Group relied on private equity firm Blackstone Partners to help purchase 162-unit Death Care operator Prime Succession. And, if I remember right, Prime Succession had help from the private equity firm Chicago Corporation in building out their company.

So, I don’t think we have seen the end of Private Equity as partners in the Death Care business realm. . . . .My suggestion is stay tuned for more.

Related article — “Why invest in Private Equity?” Moonfare

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