Over the last week I ran into an article in the Australian news about the funeral service provider Propel Funeral Partners. You can read the article for yourself here.
Propel Funeral Partners has been in business for over five years but just last week took its stock public on the Australian Stock Exchange raising $131 million (Australian). The equity raise will be used to eliminate any debt the company had in building its business to 80 units from its 2012 start. The company now has a debt-free balance sheet and plenty of cash to go hunting for acquisition candidates in the Australian market.
According to the article, Managing Director of Propel Albin Kurti says that his company will continue to screen companies and continue the dynamics of strong financial discipline as they look for single operators to come to the end of their working years and look to exit in an industry, that like the United States, is very fragmented.
Kurti mentions in the article that at the present time Propel Funeral Partners has a 4.1% share of the funeral/cremation market in Australia — second only to InvoCare’s 32% among their 250 properties.
Funeral Director Daily take: It is very interesting for me to see the ramp up of public companies in the death care industry over my career in funeral service. The “roll-ups” of funeral businesses under the Robert Waltrip Service Corporation International model continues to play out whether it is in a public company or a private company. You have to agree that Waltrip was an innovator — not only in the funeral industry, but in “roll-ups” using equity funding in general. A couple of other companies in service industries that have been very successful doing this with equity that come to mind are Waste Management in local (now national) garbage hauling, Charter Communications in the local (now national) cable industry, and Verizon in the local (now national) cell phone industry.
When you are successful — there are a lot of copy cats. Just ten days ago we did an article on the Park Lawn Corporation out of Canada, and of course we have StoneMor Partners and Carriage Services in the United States. In Great Britain, I think of the death care conglomerate, Dignity PLC. And of course, I can think back to the first SCI copy-cat in the public equity markets — The Loewen Group — a company that I bought stock in early that did not have such a happy ending.
In the death care industry there are also a lot of companies that are private that use debt financing to make acquisitions. For the past ten years, while many of these private funeral home companies have grown greatly thru acquisitions, debt financing has been at – in a historical perspective – all time low rates. It is inevitable that rates will continue to tick up in the future.
My question is this — as interest rates start to tick up at the same time many individual firms are coming to the acquisition market and the revenues per case in many individual funeral homes start to go down (because of cremation growth) — what will happen to the value of these businesses. Theoretically, Business 101 would tell you that sales prices – as a multiple – will go down because debt (interest) will be more expensive. On the other hand, if we see more public (equity based) companies with lots of cash on hand – will there be buyer competition for the best businesses on the market and some prices may actually inflate because of less debt financing by these companies?
It is interesting to ponder and one question which leads me to believe that we have not seen the end of public equity offerings in the death care market.