Last week Carriage Services, a funeral service public company based in Houston, Texas, announced that they had acquired two funeral homes in the State of Virginia.  You can read the press release here.

The release announces the acquisition of the Covenant Funeral Homes in Fredericksburg and Stafford, Virginia.  The release goes on to say that these firms serve over 1,000 families annually in the highly growing markets southwest of Washington, DC.

Mel Payne, CEO of Carriage Services, is quoted, “Partnering with the Mullins Family with the addition of Covenant Funeral Homes to our portfolio in the strategic Northern Virginia area is in complete alignment with our Ten Year Vision of Being the Best by affiliating with the best remaining family owned funeral home and cemeteries in the best strategic markets.”

The press release ends by noting that Carriage Services operates 180 funeral homes in 29 states and 32 cemeteries in 11 states.  You can see their business location profile here.

Funeral Director Daily take:  From our point of view, public companies have to increase top-line revenue as the first component of pushing stock prices and market valuations higher.  Then, they have to manage the operations so that they can push profits higher each year in order to maintain that stock price.  In today’s death care industry- where increasing direct cremation can lower top-line revenue in existing locations – accomplishing those two things is not always easy to do.

Growing revenue by acquisition  growth – regardless of the acquisition price – has always been easy for public death care companies to do.  However, paying the prices necessary to acquire top firms in growth markets and then operating the businesses profitably from that acquisition price is sometimes difficult to accomplish in today’s consumer preference death care market.

Carriage Services has not made a lot of acquisitions in the market in the last couple of years.  It is evident, in our opinion, from looking at their location map above, that they are being extremely selective in the markets that they choose to compete in.  It appears that they are looking to acquisition locations where they already have some area expertise and they only want to put their investments into growing markets.  We think that this “selectivity” is a good strategy.

If you are a funeral home owner that owns and operates a funeral home in a market where the population is growing, you are in a good situation even though you may see top-line revenue decline because of the high percentage of direct cremations.  Someone in that market will want to add service numbers and will be willing to pay for it.

However, if you are in a market that is stagnant in growth and you see a decline in top-line revenue because of the increase in direct cremation, there may not be a lot of options for you.  In our opinion, prices for firms in these types of markets, under usual circumstances, will begin dropping.

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