Will the “tailwinds” soon be back for death care M&A activity?

November 9, 2023/Business, Finance/

Going back to this August article from Donnelly Financial Solutions they believe that merger and acquisition activities were low earlier in 2023 because, at least in part, “Rising interest rates made it unappealing to borrow money. Inflation shifted company focuses elsewhere. (and) Global volatility also swayed companies to press pause on M&A activity.”

Nonetheless, it was in the 1st Quarter of 2023 that American private equity company TPG Global made an offer to the largest death care provider in Australia and New Zealand, InvoCare. After a few months of give and take InvoCare and TPG Global came to an agreement for the aquisition of the company by TPG Global.

Following through legal channels, just last week InvoCare stockholders voted to accept the buyout proposal with over 81% of votes cast by InvoCare shareholders voting in person or by proxy. And, on Friday November 3 InvoCare stock was delisted from the Australian Stock Exchange in expectation of the company going private. Here’s that notice:

“The securities of InvoCare Limited (‘IVC’) will be suspended from quotation at the close of trading today, Friday,
3 November 2023 under Listing Rule 17.2, following lodgement of the orders of the Supreme Court of New South
Wales with the Australian Securities and Investments Commission, approving the scheme of arrangement by
which Eternal Aus BidCo Pty Ltd will acquire all of the issued capital of IVC which is not already held by it or its
related entities.”

Going back to the August article from Donnelly Financial Solutions they now see the mergers and acquisitions “headwinds starting to slow”. In particular they have identified the following trends starting to move M&A forward again:

Partners seek acquisitions to support the business core
Private equity investors are increasing investment activity and shifting focus
International deals increase to gain a competitive advantage

While each of those trends have meanings in the greater business world, there is also some proof that those trends are alive and well in the death care sector at this time also.

For instance, the InvoCare purchase by TPG Global both brings forth both the idea of private equity shifting focus to deals which can privatize a company and manage it under less scrutiny than the public markets will allow and it also shows that there is no “real line” stopping at international borders. . .In essence, for the large private equity companies, “The World is their canvas”.

And providing some proof to the increasing M&A activity, the 2nd largest operator of funeral homes in the Australian and New Zealand market, publicly traded Propel Funeral Partners, mentions in this article, how they are being courted by private equity at this time also. According to the article, Propel Funeral Partners “has received “multiple” buyout proposals, but its board says none were compelling enough to start talks with any potential suitors“.

Propel has reported virtually the same information to the Australian Stock Exchange (ASX) that it has “received inbound interest regarding a potential change of control transaction from multiple parties” and “The board has determined the interest received to date has not been compelling and has therefore elected not to engage with any party regarding its interest.”

There’s interest state-side too — We know that there is plenty of interest in M & A activity in the United States also. For instance, we know of the recent proposal, since withdrawn, by Park Lawn Corporation to acquire Carriage Services. And, we know that just last week Service Corporation International CEO Thomas Ryan told listeners on the SCI Earnings Call that SCI is active in that capacity. He said, “So we’re working on some deals now that may or may not close in the fourth quarter, but highly likely they will close in the first quarter”.

I think that the first trend moving forward about “Partners seek acquisitions to support the business core” is probably as fundamental as ever. Growing scale, and reducing costs per service while doing so, is probably imperative as existing funeral homes move forward. . . .especially in the continuting world of increased cremations with minimal services attached. In my opinion case numbers, and increased service options being sold, will be the life-blood of funeral homes going forward.

What could also lead to more tailwinds is that there are those in the investment community that believe, beginning in calendar year 2024, we will see the Fed start dropping interest rates. If that is the case, lower interest rates will lead to more transactions simply because of affordability. And a funeral business that may need 6 to 9 months of due dilegence before closing will start the sales discussion now and be able to catch the downward interest rates if these investment people are correct.

Finally, I’m also of the assumption that existing death care providers will find growth easier and less risky doing so by the acquisition route rather than building new facilities. So, if you are a death care provider wondering about the future of your business — either by growing or by looking for a succession plan out of the business. . . . now might be a good time to put a plan in place.

And, if you need help in getting you started on either path, take a look at what our friends from Johnson Consulting Group can do for you.

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