Yesterday I was reading the Business Section of the Minneapolis Tribune and saw an article entitled, “Corporate Deal Market Slows”. It was an interesting article that had a couple of interesting premises and for someone who enjoys the business world it led to a good read and also allowed me to think of how the thinking mentioned in the article relates to the funeral home world.
The article talks about profits in the business world today and how these companies have plenty of available cash, are looking to expand their businesses and have cheap and easy debt financing available to them at this time. Since 2009 – at least in the Minnesota market – mergers and acquisitions have continued to go up until now they are starting to slow after peaking in 2015. One of the reasons cited for fewer sales is that there is fewer quality target firms out there and because of that, they are able to receive high multiples of operating income in the purchase price – a boon to the sellers at this time.
Many people quoted in the article believe that we are really in an extended seller’s market because so many firms want to expand. I think that is true in the funeral business when talking of firms in a certain size category. My take is that when your firm reaches the size – in this cremation dominated world – of about 350 cases there are regional and national players who may be very much interested in your firm. In the article concerning general business M&A, attorney Bruce Engler says, “We are in an extended seller’s market, driven by a supply-demand imbalance. There are not enough good companies for sale to satisfy demand.” When it comes to large funeral service firms, I agree with Engler.
If you are interested in selling, Engler says, “For sellers, this is no time to be sitting on the sidelines. The market will get worse. I don’t see it getting any better.”
In the funeral business. . .will the market get better? We are dealing with a business model that, because of increasing direct cremation percentages, is expected to provide less revenue per case moving forward. However, we will soon be moving into a demographic pattern that should provide more deaths across the country. So, if the number of funeral establishments stays status quo, then each firm should expect to gain a few more calls. In the real world, however, some firms will gain large numbers and some firms may lose numbers and financial performance will suffer.
I think that there is ample room for existing funeral home firms to become selective buyers or become a seller. Your strategy should dictate which way you want to go. One thing you probably need to watch out for is to remain status quo. While you don’t have to make any rash decisions today, you should have a general sense of – when opportunities arise – what way will I look. Funeral business is changing — make sure you are on top of it.