Carriage Services, the Houston based funeral home and cemetery operator made a big announcement after business hours on Monday.  The company issued a press release which highlighted not only the acquisition of, what they say in the release is the largest by a combined revenue definition, acquisition in their 28-year history, but also announced personnel additions as well.

In the release which you can read here, Carriage Services announced the acquisition of the Fairfax Memorial Park and Funeral Home in the rapidly growing suburban area immediately west of Washington, DC.  According to the release, Fairfax conducts 850 cemetery interments and 900 funerals annually.  It also gives Carriage Services a cluster of operations in the Washington, DC/ Northern Virginia market as they had also made purchases in that area of multiple operations in 2014 and 2018.  Again, according to the press release, the Fairfax acquisition is expected to close prior to the end of the year.

Secondly, the press release announced the hiring of William Goetz as the President and Chief Operating Officer of Carriage Services.  Mr. Goetz previously spent time as Senior Vice-President of Sales and Marketing at Sysco Corporation and Chief Marketing Officer, President, and Chief Operating Officer at Cintas Corporation.  Mr. Goetz was also named to the Board of Directors for Carriage Services with this appointment.

Finally, the press release reflected on how the latest large acquisitions made recently by Carriage Services might impact their financial numbers.  They show a table with with the title “Roughly Right Ranges” for their performance thru 2021.  These financial performance changes reflect, according to the press release,  “what should be achievable during 2021 after full operation integration in 2020 of Fairfax Memorial Park and Funeral Home, Rest Haven Funeral Home and Cemetery, Lombardo Funeral Homes and one other large combination business in Northern California expected to close in early 2020”.

In our look at these numbers it appears that from 2019 to 2021 Cariage Services expects these acquisitions to contribute upwards of $50 million to the top revenue line. . . which would be a company increase in revenue of about 20%.  It appears that their “Roughly Right Ranges” would expect the company revenue to increase from about $275 million in 2019 to over $325 million in 2021 because of these additions.

Finally, Carriage Services makes this statement in the press release.  “We have a strong conviction that being bold now will pay huge performance and valuation dividends later.  We are planning to finance the four acquisitions with our existing bank syndicate through an increased bank revolving credit facility.  We can now pause our acquisition growth for a year or two while we integrate, operate and optimize our newly acquired earnings and free cash flow power toward a goal of rapidly reducing debt to achieve moderate leverage of less than 4.5 times Total Debt to EBITDA by the end of calendar year 2021.”

Funeral Director Daily take:  To us, this was a very interesting press release and probably will, in retrospect, show a change in the self-perception of Carriage Services management.  According to their own financial statements – when you divide the number of at-need services by the approximately 187 funeral homes they operate – the average funeral home in their portfolio conducts less than 150 services per year.

While it is just intuition on our part, we believe that Carriage Services is now casting bigger nets in their acquisition quest.  When you look at their latest acquisitions – Lombardo Funeral Homes in Buffalo, New York,  do about 2000 annual cases, Rest Haven in the Dallas Metroplex does about 3000 cases annually, and now the Fairfax business unit will do about 1750 cases annually.  We wonder if in this less revenue per case environment, Carriage is now looking for larger facilities unless they can tuck a smaller operation into an existing cluster.

While you could make that argument that they are stepping up to larger firms, they also indicate in their press release that they will be “pausing our acquisition growth” to “integrate” their new acquisitions.  They also mention they want to “reduce debt”.  It will be interesting to follow this line of reasoning in the next months and quarters.  On one hand, if they “pause” their acquisition mode for a period it could cause large operation multiples to drop because Park Lawn Corporation and Service Corporation International will have one less bidder to worry about and if Carriage Services is truly going after “bigger fish” from now on, regional operators would have one less bidder on the 150-300 call operations to worry about.  That could make some of those operations more affordable to the regional operators.

And. . . the average person thinks the funeral business is boring!!!

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