Private Companies as Buyers-Attractive Option for Many Sellers
While public companies like SCI and Carriage continue to make large acquisitions and expand their national footprint, a growing handful of private companies have begun to provide an alternative succession plan for retiring owners.
These private buyers, which typically own between 5 and 30 locations, are finding ways to pay prices similar to or greater than those paid by public companies for businesses. At the same time they are able to retain many of the small company personal values that are so appealing to many multi-generation owners who are close to retirement. There is nothing inherently wrong with public companies owning funeral homes, and, in fact, some selling owners may prefer that. But there are alternatives for owners where service to families after the sale is as important as the price that they receive for the sale. And fortunately, in the past few years, these private buyers are becoming more prevalent in the market.
Rollings Funeral Service, Inc.
One example of this type of private buyer is Rollings Funeral Service, Inc.-owned and operated by Greg and Debbie Rollings, both career funeral directors. Since beinning their company about 15 years ago they have acquired more than 25 funeral homes mainly in the south eastern United States.
Greg and Debbie founded their company with the understanding that many owners approaching retirement would prefer to stay family-operated rather than becoming part of one of the large public companies or venture capital backed acquisition firms. Greg commented, “One of the concerns that some owners have is that their business may be worth more than an individual can afford to pay, so they believe that the only alternative is to sell to one of the public or venture capital backed companies. We’re proud that we can provide a well-funded alternative to these owners. We’ve actually found, in some cases, that we’re willing to pay a little more than the public and venture capital backed companies.”
Greg has found that many former owners really appreciate the back office administrative help that his company provides. “We know that many owners look at selling because they are simply tired of all the headaches of running a business. Challenges such as finding good employees, handling the increasing cremations, and growing legal and accounting responsibilities take the enjoyment out of being in the business. To counter this, we have created a system where we do all that work for them”, said Rollings. He added, “We believe we can provide just as much support to the location manager as the public companies, but without all the non-personal negatives of being part of a huge public company”.
With just over 25 locations and about $20 million in revenue, Rollings feels his business is still just a small family business. “We’re at a size where we can get respect from vendors and banks, but we keep the company culture small enough to remember that we serve one family at a time”.
Pinnacle Funeral Service, LLC.
Paul Haarer, CEO of Pinnacle Funeral Service, another leading privately owned funeral home company, says that his businesses focus on providing services to families that meet their personal preferences. According to Paul, “We’ve seen study after study that show families prefer more modern facilities, including high ceilings, natural light and a calming color palette. We’ve also seen that prices do matter to families and we do our best to keep that in mind as we set our service offerings.”
When Pinnacle purchases a business, Paul typically sets both a short-term and long-term strategy and remarks “Success in the funeral business is a marathon, not a 100-yard dash”. His approach is in stark contrast to venture backed companies, who often look to acquire businesses solely for the purpose of selling the group in the future to a larger buyer, most often a public company. Paul is extremely progressive in how he looks at the industry and markets and has even built 3 new funeral homes in large markets which is unusual in today’s environment. His main focus, however, is acquisitions, having purchased 12 locations in the last few years.
Pinnacle is actively looking at acquisitions in the Midwestern United States but is open to many other areas.
Other Private Buyers
In addition to Rollings and Pinnacle, several other privately owned companies are actively pursuing growth through acquisition. John Yopp, publisher of Southern Funeral Director magazine, has recently started a company to pursue funeral home acquisitions, as well. He currently owns three locations and plans to grow that number to at least five by end of 2017. Another private buyer, Phil Pietras, has acquired five locations in central Connecticut and is looking to expand.
As a broker, NewBridge Group is thrilled to have private buyers in the market because it gives owners alternatives to selling their business to the bigger financially driven buyers. NewBridge recommends doing due diligence when exploring a sale to a private buyer. First, you need to confirm the buyer has access to capital. NewBridge prequalifies private buyers by confirming their ability to obtain funds to complete the purchase, and where needed, NewBridge will also assist the buyer with financing. Companies that already own multiple locations will typically have strong financial relationships, but new potential buyers need to be vetted initially on their ability to fund the purchase.
Second, if you’re considering a private buyer because of their operating style, then it only makes sense to actually confirm they’re going to operate the business the way they say they will. We’d recommend calling some of the private buyer’s locations to ask how life is after the sale. Don’t be afraid to ask difficult questions.
Types of Firms that could be a good fit for a Private Buyer
Privately owned companies will generally buy businesses that are smaller than what the public companies prefer. Service Corporation and Carriage Services prefer businesses with at least $2,000,000 revenue per building. Private groups are usually interested in buying smaller businesses (often with minimum revenues of $1 million annually). However, depending on the situation many of the private buyers will be interested in even smaller businesses. Rollings stated his company is happy to talk to owners of almost any size business, particularly in the south eastern United States. Paul Haarer of Pinnacle said he’s more interested in the size of the market than the size of the business. He added “We work to try to grow any business we own. As long as the market is large enough, I think we’d be open to any size business”.
Relationships with Former Owners
Greg is proud to say his former owners are some of the happiest sellers that he’s seen in his 30 years of doing acquisitions. “I’ve worked for public companies and venture capital backed companies in the past, and the challenge for those companies is they have quarterly financial goals that they need to meet. In funeral service, you may sometimes have a slow year, and I felt like the large financial companies don’t have as much patience as a private owner. They tend to overreact by seeking short-term solutions like raising prices, reducing service, or cutting other costs. They tend to do the exact opposite of what an individual owner would do in that situation. We pride ourselves in being able to think like an individual owner and doing what’s right for the business for the long-term”.
Paul added similar thoughts by stating “The most important title we have at Pinnacle is that of “former owner”. When someone sells their family business to me, we take the responsibility to heart and make sure that we are always making good decisions for the business and the community so that the former owners can remain proud of their association with us”.
Changes that Place “After A Sale”
Owners who sell to public companies may experience changes in software, health care, employee scheduling, training, new procedures and forms, etc. One of the key advantages of selling to a private company instead of a public or venture company is that private companies typically allow you to keep many of your current systems and traditions in place. Rollings added that when he was with other companies there were more changes taking place than were necessary. So when he started his company, he focused almost entirely upon removing administrative duties from the business he buys so everyone in house can focus on serving families while minimizing other changes. “I’ve found that many owners tell me they are selling because ownership is too stressful, and they actually end up enjoying funeral service even more after I take over the business and administrative responsibilities” He continued, “Most people get into the funeral service because they have a servants heart, not so they can think like an accountant or attorney. So when we take those concerns from them, they can get back to all the reasons they’re in funeral service to begin with”.
Pinnacle Funeral Service has become known for investing in capital improvements after purchasing a business. Paul stated “We like to do some kind of visual improvement to get the relationship off to a great start, so we’ll talk to the former owner and try to come up with ideas for improving the facilities. Whether we paint, carpet or seal the parking lot, we like to do some kind of improvement so the community and employees see that the new owners really care about the business and its service.” In his most recent Wisconsin purchases, Paul commented, “The staff was excellent but, having been owned by a public company in the past, the facilities were tired. We spent several hundred thousand in updates and also built a new facility. This produced a lot of excitement among our employees and translated into better service for families.”
Looking Forward to Growth
Both Pinnacle and Rollings plan to continue their expansion through acquisitions in the next year. Pinnacle Funeral Service, LLC has recently secured a larger credit facility and now plans to accelerate its pace of acquisitions. Paul stated “We want to grow because it allows us to have greater negotiating leverage with suppliers and realize other economies of scale.” He added, “I feel like we provide a very appealing alternative to retiring owners in that we can retain the heritage and high service levels of family operations while continuing to grow the businesses.”
Rollings says he also plans to do more acquisitions over the next few years. “We’ve spent several years growing through friends retiring and selling to us, and we’ve used those years to build a strong operating system that produces a win-win situation for the owners and the families that the businesses serve.”
“As a broker and lender for more than 20 years, I’m really happy that there are private buyers in the market today. When we at NewBridge Group represent an owner we want to give them options and having well-funded private companies available can make the decision so much easier for many retiring owners”, says Jeff Boutwell, President of NewBridge Group, one of the most active funeral home succession planning and financial consulting firms in the industry.