As you get older and older time seems to move faster and faster.  For those of us who were in the business back in 2013 we saw the  acquisition of Stewart Enterprises, then the 2nd largest funeral home and cemetery operator in the country, being acquired by the largest operator, Service Coporation International.

 

At that time, according to FTC documents, Service Corporation International (SCI) operated 1,449 funeral service operations and 374 cemeteries while Stewart Enterprises operated 217 funeral service operations and 141 cemeteries.  As you can imagine, many markets had both SCI and Stewart Enterprise properties which brought the Federal Trade Commission (FTC) into the merger discussion with anti-trust monopoly concerns at the forefront.

 

At the end of the day, as you can read in this FTC bulletin from back then, the acqusition was allowed to move forward but not before SCI agreed to sell 53 funeral homes and 38 cemeteries to allow a continual competitive basis for consumers in certain markets.  In addition to that requirement, the FTC put this ruling into effect pertaining to SCI and acquisitions for the next ten years, “Also, for 10 years, the FTC will be able to review any attempt by SCI to acquire any funeral or cemetery assets in the relevant geographic markets, as well as several other local areas where no remedy was required but where further acquisitions would likely to lead to competitive harm but may not require premerger notice under the Hart-Scott-Rodino Act.”

 

In essence, SCI was virtually prohibited from acquiring funeral home and cemetery properties in certain markets for the next ten years.  As to time flying, I was reminded in the Earnings Call from SCI’s year end results recently that prohibition will be ending come May 2024.  In response to a question on the subject, here’s what SCI CEO Thomas Ryan responded:

 

“I think it’s hard to size it, but it is a significant amount of markets that we’ve been really precluded from participating in for the last two years by those prior notice agreements, which expire in May. So it’s very difficult to predict when or what. But we’re excited about it. We do think it kind of allows us to be a little more active as it relates to acquisitions and get back involved in some of those markets. So we’re excited about it. We think it will create some momentum.”

 

And here is what SCI CFO Eric Tanzberger said in responding to another question on the subject:

 

“So again, we’ve always been active in these markets in the sense of developing relationships and not so much around the deal, but getting to know people, getting to know what their plans are. So it isn’t like we’re going to for the first time begin to talk to people. We’ve been out there just being a good neighbor. So again, as far as numbers of markets, I don’t have them in front of me, but think of them as being mainly in some major markets and my guess is probably somewhere that we’d be interested in 15 to 25 type of markets that are out there that we’ve not had the ability really to think too heavily as it relates to growing through acquisitions.”

 

Here is the press release on the FTC dictate back in 2013.

 

Here is the recent SCI Earnings Call transcript

 

Funeral Director Daily:  It’s certainly hard to know the corporate strategies that take shape in the context of the private board room.  But, if you look at the FTC notice back in 2013 it states that SCI owned 1,449 funeral service locations and 374 cemeteries and Stewart Enterprises owned 217 funeral service locations and 141 cemeteries.  That is a total of approximately 1,666 funeral service locations and 415 cemeteries.

 

We know that SCI was forced by the FTC to sell some of those properties for the acquisition to take effect and we also know that over the last decade SCI divested some of their other properties to sit at where their latest press release states, “At December 31, 2023, we owned and operated 1,483 funeral service locations and 489 cemeteries . . . “

 

In my opinion, management of SCI has remained at a pretty static count for the last decade and this moratorium ending provides a virtual unadulterated look and opportunity at looking at growth and acquiring growth where they want it, geographically speaking, to come from.

 

My guess is that SCI knows where it wants to grow and what businesses they will be looking to acquire.  I’m sure that they have been building those relationships for some time and will be moving into an acquisition mode as soon as the moratorium expires.  I also believe that as they move forward with whatever plan that they have, there will be other firms in a selling mode that don’t fit SCI’s plans and they will be available to the other acquisition companies creating what might be a great “seller’s market”. . . . although the great companies won’t overpay, especially in today’s environment of direct cremation and almost at-best “stable revenue per case” situations.

 

One Investor’s Viewpoint:  If you look at the FTC press release from 2013 you will notice that they (The FTC) list the combined revenues of SCI and Stewart Enterprises at approximately $2.9 billion.  SCI just announced total revenues of almost $4.1 billion for 2023.  So, the increase from 2013 is about $1.2 billion from 2013 that’s about a 41% increase or about 4.1% per year.  Pretty fair (and good for a 3x stock price increase in that time period (see article), but not enough to really be considered a “growth company”.

 

Public stocks are, in my opinion, valued sometimes, actually most of the time, on potential.  Without acquisitions the potential of SCI is generally internal “organic growth”. . . something that comes slowly in the death care business.  Again, my opinion is that the fastest way to raise shareholder value for SCI will be to “profitably” increase revenues in a quicker manner that will move their price earnings (P/E) ratio to one that would be more aligned with a “growth company”.  And, acquisitions will be the fastest way to do so.

 

Again, just my opinion, but SCI as a slow methodical organic revenue builder will be priced like a utility company stock, but if the company can show potential faster growth it will be valued at a much higher P/E level. . . . .and that’s why I think acquisitions will soon be on the table.

 

Disclaimer — The author of this article for Funeral Director Daily is a shareholder of SCI stock.

 

More news from the world of Death Care:

Funeral home directors:  Cash-strapped families are deliberately leaving deceased relatives unclaimed.  Video news story and print article.  KING TV-5 NBC Seattle (WA)

The price and process of dying abroad.  Healthnews.com

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