Benefits of Joining a Larger Funeral Home Group
This article was originally published in the May 2020 edition of Southern Funeral Director Magazine
In March of this year the majority of state governments began mandating social distancing regulations due the Covid-19 pandemic. The rationale was that isolation made us and our communities safer by slowing the spread of the virus. This forced isolation has affected us all in many ways, and one of the biggest things we’ve found is that we really need each other more than we realize. We need social interaction, we need to be part of a team and we need support in our lives and businesses, perhaps now more than ever.
In the last few weeks, NewBridge has conducted surveys to several hundred funeral home owners to see how this pandemic is affecting them and their thoughts on business, their personal lives, and how to best serve their communities. The results of those surveys, some of which I write about below, show that many owners are realizing there are huge benefits to being part of a group.
Some common concerns we’ve heard from funeral home owners are:
- Who can I count on to manage my funeral home if I get sick?
- What if I have trouble getting supplies?
- Things are changing so quickly with online funeral services and arrangements, I’m worried I can’t keep up with the technology.
- I feel nervous having all of my retirement assets invested in one business.
- Who do I turn to with questions or to simply collaborate with?
Some recent conversations include:
One owner in Southeastern Virginia is now contemplating a sale. He states “Having the ability to spend more time with my wife and grandchildren, as well as to go hunting and fishing at the lake with my buddies is more important to me now. I need some time to myself to just get out and play before I die.”
Another owner in Nebraska states “I always thought my son would be the one to take over, but he told me recently that he is just not cut out for this business. I have a decent staff, but no one in particular I am really confident in to lead. Having the resources of a larger, regional funeral home group, and the confidence in them, knowing that if we are a man or woman down, they can step in and help out- is comforting.”
A third owner in Pennsylvania states, “I’m feeling trapped. I’m essentially a one man show and have all my eggs in one basket. If anything were to happen to me, I don’t know what would become of the business. It’s selfish of me to have this much risk riding on my shoulders which affects not only my family, but those of my small staff. Being part of a larger group would take much of this pressure off and provide me with a smooth transition into retirement.”
Another states, “The coronavirus has really opened my eyes. We’ve had 3 confirmed COVID deaths, but I suspect we had another 10 that the state didn’t have the time and resources to test. My faith and my church have become more important to me during this time. I would very much like to consider becoming part of a regional firm.”
NewBridge recognizes there are multiple options for transitioning the ownership of your funeral home.
These include:
- Passing it down to the next generation
- Selling to one of your employees or a local competitor
- Selling to larger, proven funeral home operator
The first two options have historically been the preference of most funeral home owners. We are seeing a shift away from this for a number of reasons. We have explored the potential negatives of passing it down to the next generation or selling to one of your employees, however, we would like to dig a little deeper as to why many owners prefer selling to a larger, proven funeral home operator.
Benefits of partnering with a larger company include:
Diversify Your Monetary Assets– Most private, independent funeral home owners have the majority of their net worth tied up in the business. Selling to a larger company will allow you to “take some chips off the table” and “take some risk off the table.” Creating a liquidity event through a sale will allow you to diversify your family assets into a much safer and more liquid mix of securities including stock holdings, bonds, cash, real estate and alternative assets or other investment opportunities.
Diversify Your Emotional Assets- COVID-19 has been an eye opening event for a lot of funeral home owners we speak with. We’ve heard from many owners that social distancing has forced them to realize how isolating owning a funeral home can be. Many have commented on how they now realize most of their emotional livelihood is wrapped up in the funeral home. They’ve started to see how other passions including hobbies, community and church have been put to the side.
Ability to Take Your Business to the Next Level– Many sellers have been capital constrained. Even if you are fairly young as an owner, partnering with a buyer who has deep pockets can allow you to free up working capital to expand and improve your current locations and/or grow through acquisitions. Additionally, most larger companies have resources and connections to help find quality staff to help support the business even further.
Flexibility– Partnering allows selling owners to focus on “working on the business” vs. “working in the business”. This eliminates many of the most common ownership headaches such as payroll and human resources. The long-term goal of many of our buyers is to provide more freedom and work life balance to their partners. We constantly hear that one of the most valuable benefits of working with a larger company is that it allows for less nights and weekends, and more travel to visit kids and grandkids who live out of the area.
Sounding Board– Becoming part of a larger group of likeminded people has its benefits. Having the ability to share your hurdles with others in the funeral service industry is comforting. All of our buyers have years of experience and relish in the chance to talk to their partners, discussing obstacles you may be facing- many of which they have dealt with before. There is also the opportunity to connect with other people who sold and collaborate on ideas to improve the business or simply commiserate about the challenges of funeral service.
Financial Peace– In addition to diversifying your assets, the common industry standard is to have a component of the purchase price consideration paid over several years. Knowing you are going to get paid in the future regardless of your health or performance of the business brings personal peace. This also helps with the tax burden up front. Finally, the peace of mind that is afforded by larger companies is a significant benefit over the risk of “holding paper” from an individual buyer.
No Large Bureaucracy– NewBridge buyers are primarily independent, private businesses. They consider themselves “anti-corporate”. Most of the decisions regarding how to best serve families are left to the selling owner. Compared to public company buyers, there is relatively little oversight in terms of pressure on revenue growth and cost cutting.
Freedom for Next Generations– One of the biggest concerns we hear from sellers about selling to the next generation is that they don’t want their children to have the same stresses from the business that they have had to deal with over the years. Securing their financial future while allowing them to pursue their passion without a huge burden of debt, whether it’s in the business or elsewhere, has been very rewarding for many sellers.
Update on the M&A Markets:
Of course, merger & acquisition activity has slowed significantly as a result of the pandemic. However, it has not come to a halt. There are a limited number of large, publicly traded buyers. Some of these, such as Carriage Services, Inc. (NYSE:CSV) have stated that they do not have plans to buy in the near future. Carriage had a very active 2019, acquiring four large funeral homes and combos in the fourth quarter. In December of 2019, Carriage Services CEO Mel Payne stated “We can now pause our acquisition growth for a year or two while we integrate, operate, and optimize our newly acquired earnings and free cash flow power.”
StoneMor Partners, Inc. (NYSE: STON), has been on a divestiture spree recently. On April 10th, StoneMor announced it had completed the previously announced sale of the assets of Olivet Memorial Park, Olivet Funeral and Cremation Services and Olivet Memorial Park and Crematory located in Colma, California, to Cypress Lawn Cemetery Association. StoneMor previously announced that it had signed a separate definitive agreement to sell the assets of its remaining California locations. On January 3, 2020, StoneMor completed the sale of Oakmont Memorial Park & Mortuary to Carriage Services, Inc.
Service Corporation International (NYSE: SCI), announced they plan on continuing to acquire, while Park Lawn Corporation (TSX: PLC) most recently announced an acquisition several months ago. Park Lawn is also going through some management changes.
Lending Environment
As a result of the pandemic and subsequent CARES Act legislation, lenders of all size are in “emergency” mode. The Payroll Protection Program (PPP), providing $349 billion in funding to small businesses, has been exhausted and an additional $484 billion stimulus bill was subsequently passed ($320 billion for the PPP). However, this focus, along with focus on providing separate Economic Impact Disaster Loans (EIDL), has taken up the majority of banker’s time and focus. Focusing on providing acquisition debt for funeral home transactions has taken a back burner and likely will affect the ability to provide financing assistance to many of the smaller private buyers who cannot bring funds to the table.
However, there are a few regional buyers who remain selectively active during this pandemic. NewBridge represents several of these buyers and we are actively performing valuation analyses for owners to help in their decision-making processes during this time. Once the economy starts to open up and it’s safer for buyers to travel for on-site meetings and due diligence, we expect a flurry of activity in terms of funeral home acquisitions. If you are interested in getting out ahead of the curve, or just interested in a casual conversation as to what life might look like by partnering with a larger group, feel free to call or email me any time:
Todd Reich, Director of Business Development
404-542-9956 direct
Tony Kumming, Managing Partner
(813) 579-7048 mobile