Death as a private equity cash-in is anything but a dying business.

Private equity firms are investing in healthcare from cradle to grave, and quite literally in the latter category. A small but growing percentage of the funeral home industry — and the broader bereavement care market — is being disrupted by private equity-backed firms seeking high profit margins, predictable incomes, and tens of millions of baby boomers. are drawn to ultimate death.

The funeral home industry is in many ways a prime target for private equity, which seeks out markets that are highly fragmented and can benefit from consolidation. By linking funeral home chains, these firms can take advantage of economies of scale in purchasing, optimizing marketing strategies, and sharing administrative tasks.

According to industry officials, about 19,000 funeral homes make up the $23 billion industry in the U.S., at least 80 percent of which are privately owned and operated — mostly mom-and-pop businesses, including some regional ones. Chains are attached. The remaining 20%, or about 3,800 homes, are owned by funeral home chains, and private equity-backed firms own about 1,000 of them.

Consumer advocates fear that private equity firms will follow the lead of publicly traded companies that have built large funeral home chains and drive up prices to consumers. “The real owner who’s being served isn’t the grieving family paying the bill — it’s the shareholder,” said Joshua Slocum, executive director of the Funeral Consumer Alliance, a nonprofit organization that provides end-of-life care to consumers. Wants to know about ritual expenses and services.

Although funeral price data is not readily available to the public, a survey of local affiliates of the coalition found that when publicly traded or private equity-backed chains acquire individual funeral homes. So prices go up.

In Tucson, Arizona, for example, when a local owner sold Angel Valley Funeral Home to private equity-backed Foundation Partners Group in 2019, funeral prices jumped from $425 to $760 without a viewing. or from $1,840 to $2,485 for cremation without a viewing. , and $3,405 to $4,480 for a full, economical funeral.

In Mesa, Arizona, the sale of Lakeshore Mortuary to publicly traded funeral home chain Service Corp. International raised the cost of cremation from $1,565 in 2018 to $1,770 in 2021, and cremation from $2,795 to $3,680. , and funeral expenses from $4,385 to $5,090.

“We believe our pricing is competitive and appropriate in the markets in which we operate,” a Service Corporation International official said in an email.

Details of these price increases were provided by Martha Lundgren, a board member of the Funeral Consumer Alliance of Arizona. He said the acquisition of the funeral home has led to the cancellation of fixed-price contracts with customers who are members of the alliance. In 2020, a funeral at Adair Dodge Chapel in Tucson costs members $395, about two-thirds of the standard price of $1,100. But after the Foundation Partners Group acquired the funeral home, the member pricing agreement was revoked, and the cost of a direct burial dropped to $1,370.

Foundation Partners Group officials said the price increase partly reflected higher costs of supplies, such as caskets, as well as rising labor costs. But most of the increases, he said, represent a move toward a more transparent pricing system that includes administrative and transportation fees that other funeral homes add later.

“We don’t take advantage of people out there when they’re not thinking clearly,” said Kent Robertson, the company’s president and CEO. “That’s not who we are.”

In the late 1980s and early 1990s, the U.S. funeral home industry saw a big surge of consolidation, and again around 2010, said Chris Kruger, a Phoenix-based consultant to the industry. And acquisitions have accelerated in the last two to three years. Many investors are banking on a significant increase in demand for death care services in the coming years as 73 million baby boomers, the oldest of whom will be in their late 70s, continue to age. .

“The sheer demographics are clearly in everyone’s favor here,” Kruger said. Funeral homes already have attractive margins, and chaining them together to share administrative costs can increase profitability even more.

Meanwhile, many funeral home owner-operators are reaching retirement age and no one in the family is ready to take over. A 2021 survey by the National Funeral Directors Association found that 27% of owners plan to sell or retire their business within five years.

The desire to sell, combined with investment money in the field, has driven funeral home prices to new heights. Before private equity turned its eye to funeral homes, they were selling for three to five times their annual revenue. “Now I’m hearing seven to nine,” said Barbara Cammis, executive director of the Cremation Association of North America, a trade group for the cremation industry.

Funeral homes cost more than their brick-and-mortar assets. Funeral home directors are often integral parts of their communities and have established significant goodwill with their neighbors. So when corporate chains acquire these houses, they rarely change the name and often retain the previous owners to smooth the transition.

Tony Comings, president of the Newbridge Group in Tampa, Florida, helps sell the broker’s funeral home. Many of his clients are skeptical of big firms and often take less money to sell to someone they believe won’t tarnish their hard-earned reputation. Most ex-owners plan to stay in the community and don’t want their friends and neighbors to be abused. “I’m not saying that any other company is going to take half of what they’re offering,” Cummings said. “But now there are two big pieces for sale: that money and the right fit.”

Five years ago, when Robert Olthoff decided to sell his family’s funeral home in Elmira, New York, he contacted some of the largest publicly traded funeral home chains. But when representatives from several companies approached him to make their offers, Olthoff realized that none of the major chains had sent someone who specialized in serving the business. “They sent their accountants, and they sent their lawyers,” he recalled. “Everything was about numbers, numbers, numbers. And I didn’t like that.”

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

In this unidentified photo, Robert Olthoff stands next to a portrait of his father. Olthoff sold his family’s funeral home in Elmira, New York, to a private owner after realizing that the major chains interested in buying it were more focused on the finances than the service side of the business. (Robert Olthoff)

“I can’t put a dollar amount of value on what it’s really worth selling to someone who’s a funeral director himself,” Olthoff said. “Because moving forward, your name will still be on the front of this building.”

Victoria Hahnemann, a professor at Creighton University School of Law who studies the home funeral industry, worries that the new corporate ownership could prove devastating for grieving families. “They’re not behaving like normal, rational consumers,” he said. “They are not bargaining because death is seen as an inappropriate time for bargaining.”

For most families, a funeral will be one of their biggest expenses ever. But they often enter the buying process with serious grief and are unsure of what is customary or appropriate.

According to a 2022 survey by the Consumer Federation of America, only 1 in 5 consumers visit more than one funeral home to get a price list. And online comparisons are virtually impossible — a study by the Federation and the Funeral Consumer Alliance found that only 18 percent of funeral homes listed their prices on their websites. As a result, families typically rely heavily on the expertise of a single funeral director, whose goal is to sell them the most expensive options. Consumers may therefore be forced to purchase packages for open casket funerals that include embalming and other services that add to the cost and may be unnecessary.

“Is this kind of pickled, shellacked, cosmeticized, preserved corpse where the future is going to be? I don’t know that the answer is ‘yes,'” Hahnemann said. “And I think there are investors who are betting. That’s not the case.”

Foundation Partners Group is a great example. Backed by private equity firm Access Holdings, the funeral home chain moved five years ago to acquire funeral homes with high funeral rates. Cremation rates have continued to rise nationally over the past two decades, with approximately 58% of families now choosing cremation over casket burial. Foundation partners expect that rate to reach 70 percent by 2030.

The company has acquired more than 75 businesses in top cremation states, including Arizona, California, Colorado and Florida. Most of these funeral homes average over 150 funerals per year.

Individual funeral homes “don’t have access to marketing budgets, they don’t have access to safety and health plans and benefits and all these different things,” said Robertson, CEO of Foundation Partners. “And because we have the ability to run marketing and do other things, we take that 150-call firm to maybe 200 calls.”

Robertson said the funeral home industry is different from other sectors in which private equity firms might consider investing, describing it as a competitive call to work in hospice care. Foundation partners are fortunate that their supporters understand the service side of the industry as well as finance, he said. “Private equity firms aren’t necessarily known for their deep empathy for people. They’re more known for their financial returns. “Getting both is really important.”

Foundation Partners owns Tulip Cremation, an online service that allows people to order cremation with just a few clicks — and without ever stepping foot in a funeral home. Tulip currently operates in nine states where the foundation partners with funeral homes. The company expects the service to eventually roll out nationally.

Hahnemann said modern methods like the tulip are sorely needed in the funeral home industry, which has barely changed in 100 years. “It’s ridiculous to me that the average cost of a funeral is running $7,000 to $10,000,” she said. “People need less expensive options, and innovation will get us there.” Tulip charges less than $1,000 for a funeral. The ashes are returned to the families.

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

“Private equity investment has the potential to go in one of two directions: It’s either to enhance the status quo and increase value, or the investment objective is going to be disruptive,” Hahnemann said. “And disruption promises the possibility of bringing more affordable processes to market.”

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