Death is nothing but a dying business as private equity profits

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Private equity firms are investing in healthcare, literally from cradle to grave. The funeral industry, and a small but growing share of the wider death care market, are driven by high margins, predictable income, and private equity attracted to the eventual death of tens of millions of baby boomers. They are eaten up by the companies that support them.

The funeral industry is in many ways a prime target for private equity. Private equity is highly fragmented and seeks markets that can benefit from consolidation. By bringing together a series of funeral homes, these companies can take advantage of economies of scale to buy, improve marketing strategies, and share administrative functions.

About 19,000 funeral homes make up the $23 billion U.S. industry, at least 80% of which are still privately owned and operated, mostly family-owned businesses, according to industry insiders. Several regional chains have been launched. Of the remaining 20%, about 3,800 homes are owned by funeral home chains, of which about 1,000 are owned by private his equity-backed companies.

Consumer advocates fear private equity firms will follow the lead of public companies that have built large chains of funeral homes and raised prices for consumers. Joshua Slocum, executive director of the Funeral Consumers Alliance, a non-profit that aims to educate consumers about funeral costs and services, said:

Funeral price data is not publicly available, but research by local affiliates of the Alliance suggests that prices tend to rise when individual funeral homes are acquired by publicly traded companies or private equity-backed chains. I understand.

For example, in Tucson, Arizona, when a local owner sold the Angel Valley Funeral Home to private equity-backed Foundation Partners Group in 2019, prices rose from $425 to $760 for cremation, with attendance and For a no-visit burial, it rose from $1,840 to $2,485. , between $3,405 and $4,480 for a complete, economical funeral.

In Mesa City, Arizona, the sale of Lakeshore Mortuary to publicly traded funeral chain Service Corporation International helped drive cremation prices from $1,565 in 2018 to $1,770 in 2021 and burial prices from $2,795 to $3,680. , and led to an increase in economic prices. Funerals from $4,385 to $5,090.

A Service Corporation International representative said in an email: “We believe our pricing is competitive and reasonable in the markets in which we operate.

Details of these price increases were provided by Martha Lundgren, a member of the Arizona Funeral Consumers Alliance. In 2020, a cremation at Tucson’s Adare Dodge Chapel cost $395, about two-thirds of the standard price of $1,100. But after Foundation Partners Group bought the funeral home, the member’s pricing deal was canceled, raising the price for her direct cremation to $1,370.

Officials at Foundation Partners Group said the price increases partly reflected higher prices for supplies such as coffins and higher labor costs. represents a move to a more transparent pricing system that includes administrative and transportation costs that other funeral homes add later.

Kent Robertson, president and CEO of the company, said: “It’s not who we are.”

The U.S. funeral industry experienced a major wave of consolidation in the late 1980s and early 1990s, and another consolidation around 2010, says Chris Cruger, a Phoenix-based industry consultant. Acquisitions have also reached a breakneck pace over the last couple of years. Many investors expect demand for death care services to increase significantly over the next few years as his 73 million baby boomers, the oldest of whom is in his late 70s, continue to age. I’m here.

“The demographics are clearly in everyone’s favor here,” Krueger said. can do.

On the other hand, many funeral home owners and operators are reaching retirement age, leaving their families with no heirs. His 2021 survey by the National Funeral Directors Association found that 27% of his owners plan to sell the business or retire within his five years.

The desire to sell, combined with the investment capital pouring into the scene, is pushing funeral home prices to new heights. Before his private equity turned to funeral homes, he was selling at three to five times his annual earnings. Barbara Chemis, executive director of the North American Cremation Society, a trade association for the cremation industry, said:

A funeral home’s value lies in more than its brick-and-mortar assets. Funeral home directors are often an integral part of the community and have established significant goodwill with their neighbors. , often retain previous owners to smooth the transition.

Tony Kumming, president of NewBridge Group in Tampa, Fla., helps brokers sell funeral homes. Many of his clients are skeptical of big companies, and it often costs less to sell to someone who believes they will not tarnish their hard-earned reputation. plans to live in a community and does not want its friends and neighbors to be mistreated. say. “But now he has two big components to the sale: money and the right fit.”

Five years ago, when Robert Olthof decided to sell his family’s funeral home in Elmira, New York, he contacted several of the major publicly traded funeral home chains. However, when representatives from several companies approached him with offers, Olthof realized that none of the big chains sent someone who was familiar with the service side of the business. “They sent accountants, they sent lawyers,” he recalls. “It was all about numbers, numbers, numbers. And I didn’t like it.

Instead, Orsoff sold it to Greg Rollins. Greg Rollins was a former funeral director who assembled a chain of privately owned 90-site funeral homes throughout the Northeast. Rollins offered less than the big chains, but he knew what it was like to wake up at 2:30 a.m., put on a suit and go help a grieving family. He knew what it was like to bury a child.

“You can’t put a dollar value on whether it’s actually worth selling to someone who is a funeral director himself,” Olthof said. “As you move forward, your name will still be on the front of the building.”

Victoria Heinman, a professor at Creighton University Law School who studies the funeral industry, fears ownership of the new company could be devastating for grieving families. “They aren’t behaving like normal, rational consumers,” she said. “They’re not bargaining because death is seen as an inappropriate time to bargain.”

For most families, funerals are one of the biggest expenses they will ever incur. However, they are often cognitively impaired by grief and enter the shopping process unsure of what is customary and appropriate.

According to a 2022 study commissioned by the Consumers Federation of America, only one in five consumers visits multiple funeral homes to obtain price lists. Also, online comparisons are virtually impossible. A study by the Coalition and the Funeral Consumers Alliance found that only 18% of the funeral homes sampled have prices posted on their website. As a result, families typically rely heavily on the expertise of a single funeral director who has an incentive to sell the most expensive options. You may be forced to purchase an open coffin funeral package that includes certain other services.

“Do such pickled, shelled, dressed and preserved corpses have a future? I don’t know if the answer is yes,” Heinman said. “And I think some investors are betting otherwise.”

Foundation Partners Group is a prime example. Backed by private equity firm Access Holdings, the funeral home chain moved five years before him to acquire funeral homes with high cremation rates. Cremation rates have risen steadily nationwide over the past two decades, with nearly 58% of families now choosing cremation over casket burial. Foundation Partners expects that percentage to reach 70% by 2030.

The company has acquired over 75 companies in cremation-rich states such as Arizona, California, Colorado and Florida. Most of these funeral homes average over 150 funerals per year.

Foundation Partners CEO Robertson said: “And we have the ability to drive marketing and do other things, so 150 telcos maybe 200 for him.”

Robertson explains that the funeral industry is a profession comparable to working in hospice care, unlike other sectors a private equity firm might consider investing in. Foundation Partners is fortunate that their backers understand the service and financial parts of the industry, he said. “Private equity firms aren’t necessarily known for having a deep compassion for people. They’re known for their financial interests,” he said. “Having both is really important.”

Foundation Partners owns Tulip Cremation, an online service that allows cremation to be ordered in just a few clicks without ever stepping foot in a crematorium. Tulip currently operates in nine states where Foundation Partners has funeral homes. The company hopes the service will eventually be rolled out nationwide.

Haneman said an innovative approach like Tulip’s is desperately needed in a funeral industry that has changed little in 100 years. “It’s ridiculous that the average cost of a funeral is $7,000 for her to $10,000 for her,” she said. “People want cheaper options, and innovation gets us there.” Tulip’s cremation costs less than her $1,000. Ashes will be mailed to the family.

Other online cremation services are Solace Cremation, Smart Cremation and Lumen Cremation.

“Private equity investment can go one of two ways: either to entrench the status quo and drive prices up, or the investment objective becomes disruption,” said Haneman. increase. “And disruption promises the potential to bring more affordable processes to market.”

KHN (Kaiser Health News) is a national newsroom that produces in-depth journalism on health issues. KHN is one of the three main operating programs of KFF (Kaiser Family Foundation), along with policy analysis and polls. KFF is a donated non-profit organization that provides information on health issues to the public.

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