Death Is Anything But As Private Equity Cash Is A Dying Business | Health Advice

[UPDATED on Sept. 22]

Private equity firms are investing in health care from the cradle To the grave, and literally in that latter category. A Small But Growing Percentage Of The Funeral Home Industry – And The Pervasive death care The market is being lured by private equity-backed firms with high profit margins, projected earnings, and the eventual deaths of millions of baby boomers.

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

According to industry executives, about 19,000 funeral homes Make up a $23 billion industry in the US, of which at least 80% remain privately owned and operated – mostly mom and pop businesses, with some regional chains. 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 worry that private equity firms will follow the lead of publicly traded companies that have built large chains of funeral homes and raised prices for consumers. “The real owner who’s being served isn’t the grieving family that’s paying the bill—it’s the shareholder,” said Joshua Slocum, executive director of Funeral Consumers Alliance, a nonprofit that deals with funeral costs and services. Wants to educate consumers about

Although funeral value data is not readily available to the public, surveys by local partners The Coalition has found that price increases are followed when publicly traded or private equity-backed chains acquire individual funeral homes.

In Tucson, Arizona, for example, when a local owner Bought Angel Valley Funeral Home In 2019 for the private equity-backed Foundation Partners Group, prices rose from $425 to $760 for a cremation, $1,840 to $2,485 for a burial without any viewing or visitation, and for a complete, affordable funeral. From $3,405 to $4,480.

In the Arizona city of Mesa, the sale of Lakeshore Mortuary to the publicly traded funeral home chain Service Corporation International increased from $1,565 in 2018 to $1,770 in 2021, up from $2,795 to $3,680 and for an affordable cremation. increased prices for. Funerals from $4,385 to $5,090.

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

Details of those price increases were provided by Martha Lundgren, a member of the Funeral Consumer Coalition on the Board of Arizona. She said the funeral home takeover has voided pricing agreements on behalf of consumers who are members of the alliance. In 2020, the cost of a cremation at Adair Dodge Chapel in Tucson was $395, about two-thirds the $1,100 standard price. But after the funeral home was acquired by Foundation Partners Group, the member pricing agreement was canceled, and the price for the straight cremation increased to $1,370.

Foundation Partners Group officials said the increase in prices partly reflects the higher price of supplies, such as coffins, as well as increased labor costs. But most of the increases, he said, represent a move to 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 just not who we are.”

A major surge of consolidation occurred in the American funeral home industry in the late 1980s and early 1990s, and again around 2010. Chris Kruger, a Phoenix-based consultant to the industry. And acquisitions have arrived at a rapid pace 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.

“Sheer demographics are clearly in everyone’s favor here,” Kruger said. Funeral homes already have attractive margins, and combining them into chains to share administrative costs could increase profits even more.

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

The desire to sell, combined with investing money in the area, has driven the prices of funeral homes to new highs. Before private equity took its toll on funeral homes, they were selling for three to five times their annual revenue. “Now I’m hearing seven to nine,” said Barbara CamisoExecutive director of the Cremation Association of North America, a trade group for the cremation industry.

Funeral homes are worth more than their brick-and-mortar assets. Funeral home directors are often integral to their communities and have established significant goodwill with their neighbors. So when corporate chains acquire these homes, they rarely change names and often keep former owners around to smooth the transition.

Tony Cumming, president of the Newbridge Group in Tampa, Florida, helps with the sale of the broker’s funeral home. Many of their clients are skeptical of larger firms and often charge less money to sell to someone they feel will not tarnish their hard-earned reputation. Most former owners plan to live in the community and do not want their friends and neighbors to be abused. “I’m not saying that any other company is going to take half of what it’s offering,” Cumming said. “But now there are two big pieces for sale: That’s the money and the right fit.”

Five years ago, when Robert Olthof decided to sell his family’s funeral home in Elmira, New York, he approached some of the larger publicly traded funeral home chains. But as representatives from several companies came to him to make their offers, Olthof realized that none of the major chains had sent anyone on the service side of the business. “They sent their accountants, and they sent their lawyers,” he recalled. “Everything was about numbers, numbers, numbers. And I didn’t like it.”

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

“I can’t put a dollar-amount value that it’s actually worth selling to a guy who’s a funeral director himself,” Olthof said. “Because going forward, your name will still be on the front of that building.”

Victoria Hahnemann, a Creighton University School of Law professor who studies the funeral home industry, worries that new corporate ownership could be disastrous for bereaved families. “They’re not behaving like normal, rational consumers,” she said. “They’re not bargain-shopping because death is seen as an inappropriate time to bargain-shop.”

For most families, the funeral will be one of the biggest expenses they will incur. But they often enter shopping processes that are cognitively affected by grief and not sure what is customary or appropriate.

Only 1 in 5 consumers go to more than one funeral home to get a price list, a . According to 2022 survey Commissioned by the Consumer Federation of America. And online comparison is almost impossible— one discovery The Federation and the Funeral Consumers Alliance found that just 18% of the funeral homes they sampled listed their prices on their websites. As a result, families usually rely heavily on the expertise of a funeral director, with the aim of selling them the most expensive option. Consumers may therefore be pushed into purchasing packages for open coffin burials that include embalming and other services that increase costs and may be unnecessary.

“Is that kind of pickled, shelled, cosmeticized, preserved corpse where the future will be? I don’t know if the answer is ‘yes,'” Hahnemann said. “And I think there are investors who are betting it isn’t.”

Foundation Partners Group is a prime example. Backed by private equity firm Access Holdings, the funeral home chain shifted to acquiring funeral homes with higher cremation rates five years ago. National funeral rates have been rising steadily over the past two decades, with about 58% Families are now choosing cremation over coffin burial. Foundation Partners expects this rate to reach 70% by 2030.

The company has acquired more than 75 businesses in high-cremation states, including Arizona, California, Colorado and Florida. Most of those funeral homes average more than 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 drive marketing and do other things, we move that 150-call firm to maybe 200 calls.”

Robertson said the funeral home industry differs from other sectors in which private equity firms may consider investing, describing it as having a comparable calling to work in hospice care. Foundation Partners are fortunate that their supporters understand the services part of the industry as well as the financials, he said. “Private equity firms are not necessarily known for having deep compassion for people. They are more known for their financial returns,” he said. “It is really important to get both.”

Owned by Foundation Partners tulip cremation, an online service that allows people to order funerals with just a few clicks – and without ever setting foot in a funeral home. Tulip currently operates in nine states where the Foundation Partners has funeral homes. The company expects the service to eventually operate nationally.

Hahnemann said there is a great need for innovative approaches like Tulip in the funeral home industry, which has barely changed in 100 years. “It’s absurd to me that the average funeral cost is running up to $7,000 to $10,000,” she said. “People need less expensive alternatives, and innovation is going to get us there.” Tulip charges less than $1,000 for a cremation; The ashes are sent back to the families.

There are other online funeral services consolation cremation, smart crematoriumAnd lumen cremation,

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

KHN (Kaiser Health News) is a national newsroom that conducts in-depth journalism about health issues. Along with policy analysis and polling, KHN is one of three major operational programs. kff (Kaiser Family Foundation). KFF is a thriving non-profit organization that provides information on health issues to the nation.

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