Private equity firms are investing in healthcare from cradle to grave, and quite literally in that latter segment. A small but growing percentage of the funeral home industry — and the larger death care market — is being lured by private equity-backed companies because of high profit margins, predictable returns, and the eventual death of millions of baby boomers.
The funeral home industry is in many ways a prime target for private equity, which is highly fragmented and looks for markets that could benefit from consolidation. By consolidating funeral home chains, these companies can take advantage of economies of scale in purchasing, improving marketing strategies, and sharing administrative functions.
According to industry officials, about 19,000 funeral homes make up the $23 billion industry in the U.S., at least 80% of which are privately owned and operated — mostly mom-and-pop businesses, with a few regional chains thrown in. The remaining 20%, or about 3,800 homes, are owned by funeral home chains, and private equity-backed firms own about 1,000 of these.
Consumer advocates worry that private equity firms will follow the lead of publicly traded firms that have created large chains of funeral homes and raised prices for consumers. “The real master paying the service isn’t the bereaved family — it’s the shareholders,” said Joshua Slocum, executive director of the Funeral Consumers Alliance, a nonprofit that seeks to educate consumers about funeral costs and services.
Although funeral price data is not readily available to the public, surveys by the coalition’s local affiliates show that when publicly traded or private equity-backed chains acquire individual funeral homes, prices tend to increase.
In Tucson, Arizona, for example, when a local owner sold Angel Valley Funeral Home to private equity-backed Foundation Partners Group in 2019, prices for cremation rose from $425 to $760, from $1,840 to $2,485 for burial without a viewing. , and from $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 cremation prices from $1,565 in 2018 to $1,770 in 2021, burials from $2,795 to $3,680 and economy funerals from $4,385 to $5,090.
“We believe our prices are competitive and reasonable in the markets in which we operate,” a Service Corporation International official said in an email.
Martha Lundgren, Arizona board member of the Funeral Consumer Alliance, detailed the price hike. He said the acquisition of the funeral home has voided the price agreement negotiated on behalf of consumers by members of the coalition. In 2020, a cremation at Tucson’s Adair Dodge Chapel costs members $395, about two-thirds of the $1,100 standard price. But after Foundation Partners Group acquired the funeral home, the member pricing agreement was canceled and direct cremation prices increased to $1,370.
Foundation Partners Group officials said the price increase partly reflects the higher cost of supplies, such as caskets, as well as increased labor costs. But most of the increase, they said, represents 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 who are out there when they’re not thinking clearly,” said Kent Robertson, the company’s president and CEO. “That’s not who we are.”
A major wave of consolidation occurred in the U.S. funeral home industry in the late 1980s and early 1990s and again in the 2010s, said Chris Krueger, a Phoenix-based industry consultant. And acquisitions have reached a feverish pace in the past two to three years. Many investors are banking on a significant increase in demand for death care services in the coming years, with 73 million baby boomers, the oldest of whom will be in their late 70s.
“The perfect population is clearly in everyone’s favor here,” Kruger said. Funeral homes already have attractive margins, and combining them into chains to share administrative costs can boost profits.
Meanwhile, many funeral home owner-operators have reached retirement age and have no family members willing to take over. 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 investment money pouring into the sector, has driven funeral home prices to new heights. Before private equity took a look at funeral homes, they were selling at three to five times their annual revenue. “Now I hear seven to nine,” said Barbara Kemmis, 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 properties. Funeral home directors are often an integral part of their community and have established significant goodwill with their neighbors. So when corporate chains acquire these houses, they rarely change the name and often keep the former owners around to smooth the transition.
Tony Cummings, president of Newbridge Group in Tampa, Florida, assisted in the sale of the broker’s funeral home. Many of his clients are suspicious of large firms and often take less money to sell to someone they believe won’t tarnish their hard-earned reputation. Most former owners plan to live in the community and do not want their friends and neighbors to be mistreated. “I’m not saying anybody’s going to take half of what other companies are offering,” Kumming said. “But now there are two big pieces to selling: it’s 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 as representatives from multiple companies approached him to make their offers, Olthoff realized that none of the big chains sent anyone skilled in business services. “They sent their accountants, and they sent their lawyers,” he recalls. “Everything was numbers, numbers, numbers. And I didn’t like it.”
Instead, Olthoff sold to Greg Rollins, a former funeral director who amassed a privately owned, 90-site funeral home chain across the Northeast. Rollins 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.
“I can’t put a dollar-amount value on how much it’s worth to sell to a person who is a funeral director themselves,” Olthoff said. “Because moving forward, your name will still be on the front of that building.”
Victoria Hanneman, a Creighton University School of Law professor who studies the funeral home industry, worries that new corporate ownership could be 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 the largest expenses they will incur. But they often enter the shopping process cognitively distressed and unsure of what is traditional or appropriate.
According to a 2022 survey commissioned by the Consumer Federation of America, 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% of the funeral homes they sampled listed their prices on their website. As a result, families typically rely heavily on the expertise of a single funeral director, who is intent on selling them the most expensive options. Consumers may therefore be pushed to purchase packages for open-casket funerals that include embalming and other services that increase costs and may be unnecessary.
“Where is the future of those kinds of pickled, peeled, cosmeticized, preserved corpses? I don’t know that the answer is ‘yes,'” Hahnemann said. “And I think there are investors who are betting that it’s not.”
Foundation Partners Group is a prime example. Backed by private equity firm Access Holdings, the funeral home chain moved five years ago to acquire funeral homes with high cremation rates. Cremation rates nationally have risen steadily over the past two decades, with nearly 58% of families now choosing cremation over casket burial. Foundation Partners expects this rate to reach 70% 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.
Foundation Partners CEO Robertson said 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.” “And because we have the ability to run marketing and do other things, we take that 150-call firm to 200 calls.”
The funeral home industry is different from other sectors that private equity firms might consider investing in, Robertson said, describing it as a calling comparable to working in hospice care. Foundation partners are fortunate that their supporters understand the service side 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’s really important to get both.”
Foundation Partners owns Tulip Cremation, an online service that allows people to order cremation with just a few clicks — and without ever setting foot in a funeral home. Tulip currently operates in nine states where Foundation Partners has funeral homes. The company hopes the service will eventually roll out nationally.
Hahnemann said innovative methods like the tulip are much needed in the funeral home industry, which has changed little in 100 years. “It’s absurd to me that the average cost of a funeral is running $7,000 to $10,000,” he said. “People need less expensive options, and innovation is getting us there.” Tulip charges less than $1,000 for a cremation; The ashes were returned to the family.
Other online cremation services are Solace Cremation, Smart Cremation and Lumen Cremation.
“Private equity investment is likely to go in one of two directions: It’s either going to entrench the status quo and drive prices, or it’s going to disrupt the investment objective,” Hahnemann said. “And disruption promises the potential to bring more affordable processes to market.”
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