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Deathcare M&A hits two-decade high

Like Lazarus, the deathcare space is showing signs of life.

In 2022, Mergermarket tracked 19 mergers and acquisitions targeting North America-based funeral homes, cemeteries and crematoria worth a total of USD 889m, although deal value is rarely disclosed. That made last year the busiest in nearly two decades, surpassed only by 2004’s 36 deals.

Prominent strategic acquirors in 2022 included Park Lawn [TSX:PLC], Carriage Services [NYSE:CSV] and the behemoth in the deathcare space, Service Corp International [NYSE:SCI]. Private equity also featured heavily, with Access Holdings-backed Foundation Partners Group making acquisitions of crematoria and Axar Capital Management taking StoneMor private.

This year, deathcare M&A is off to a slower start, with Mergermarket tracking five deals through 25 July. But the pace is expected to pick up.

“There’s more [consolidation] now and there will be more in the future,” said one executive at a funeral home company.

Fragmented market, rising mortality

A major reason for the expected increase in consolidation is the highly fragmented nature of the funeral home market. Roughly 80% is dominated by family-run businesses. Many have been owned for generations. Some funeral directors no longer want to continue running the family business. That will provide acquisition opportunities. “These are cash-generating businesses,” a second executive said of the opportunity.

The sector also benefits from a major tailwind. People are dying younger and faster. Between now and 2050 the mortality rate in the US is expected to increase from 8.5 to 10.25 per 1,000 due to drugs, suicide, aging baby boomers, and other factors, said the sector executive, citing a study from CDC/United Nations. People have already been dying younger in the last couple of years – from 78.8 years in 2019 to 76.4 years in 2021, according to the CDC’s National Center for Health Statistics. The US is suffering an increase in all-cause mortality –  with the response to the pandemic exacerbating many health issues. Life insurance companies also reported a 40% increase in the death rate of working age people in 2021 compared with pre-pandemic levels.

Target and consolidators

At least one major deal could get done this year. Carriage Services announced on 29 June it was working with Lazard on a potential sale. Within hours, Park Lawn confirmed it had offered to buy it. Until then, Carriage had been looking at divesting some of its 170 funeral homes and 30 cemeteries to pay down debt, and it’s possible that effort led to offers for the whole company. Park Lawn has a CAD 816m market cap, while Carriage is valued at USD 507m. 

The undisputed giant in the space is SCI, with a USD 10.3bn market cap. SCI has bought several deathcare businesses over the years – between 2006 and 2014 it acquired several top five operators, including Alderwoods, Keystone, and Stewart Enterprises. It says it will continue with strategic acquisitions, along with divestitures of non-strategic funeral homes and cemeteries. In 2022, it invested USD 103m on 18 funeral home locations, although Mergermarket did not track those deals because they were not announced individually.

Another serial acquiror is Foundation Partners, which has focused on accelerating the pace of acquisition in the US West and Sunbelt with the backing of Access Holdings. It is focused on crematoria and is betting that a more mobile population less committed to a place will prefer cremation over burial.

The only certainties in life are death and taxes, Benjamin Franklin once said. Deathcare consolidation might just be another.

Analytics by Izaz Ansari