Private equity firms invest in healthcare from the cradle to the grave, and literally in this last category. A small but growing percentage of the funeral home industry—and a wider concern for death the market is being swallowed up by firms backed by private investment, attracted by high profit margins, predictable returns, and the possible death of tens of millions of baby boomers.
The funeral home industry is in many ways a prime target for private equity investors looking for markets that are highly fragmented and could benefit from consolidation. By linking networks of funeral homes, these firms can leverage economies of scale in purchasing, improve marketing strategies, and separate administrative functions.
According to industry representatives, about 19,000 funeral homes make up a $23 billion industry in the U.S., at least 80% of which remains privately owned and operated—mostly family and family-owned businesses, as well as a few regional chains. The remaining 20%, or about 3,800 homes, are owned by funeral homes. home networks, and about 1,000 of them are owned by private equity firms.
Consumer advocates fear that private equity firms will follow the example of public companies that have built large chains of funeral homes and raised prices for consumers. “The real host being served is not the grieving family paying the bill, but the shareholder,” said Joshua Slocum, chief executive of the Funeral Consumers Alliance, a non-profit organization that aims to educate consumers about funeral costs and services.
While funeral price data is not available to the public, local branch surveys The Alliance found that when publicly traded or privately-backed chains purchase individual funeral homes, prices tend to follow.
In Tucson, Arizona, for example, when the local owner Angel Valley Funeral Home sold in 2019, for the Private Equity Foundation Partners Group, prices rose from $425 to $760 for a cremation, from $1,840 to $2,485 for a burial without inspection or visit, and from $3,405 to $4,480 for a full cost-effective burial.
In the Arizona city of Mesa, the sale of Lakeshore Mortuary to public funeral home chain Service Corporation International has raised prices for cremation from $1,565 in 2018 to $1,770 in 2021, burial from $2,795 to $3,680, and cost-effective burial from $4,385 to $5,090.
“We believe our pricing is competitive and reasonable in the markets we operate in,” a spokesperson for Service Corporation International said in an email.
Details of this price increase were provided by Martha Lundgren, board member of the Funeral Consumers Alliance of Arizona. She said the acquisition of funeral homes has led to the termination of pricing agreements made on behalf of consumers who are members of the alliance. In 2020, a cremation at Tucson’s Adair Dodge Chapel cost participants $395, nearly two-thirds off the standard price of $1,100. But after the Foundation Partners Group acquired the funeral home, the member pricing agreement was terminated and the direct cremation price rose to $1,370.
Foundation Partners Group said the price increase partly reflects the higher cost of consumables such as jewelry boxes, as well as higher labor costs. But much of the increase, they say, is a move to a more transparent pricing system that includes administration and shipping fees that other funeral homes add later.
“We don’t take advantage of people who can’t think clearly,” said Kent Robertson, the company’s president and chief executive officer. “We’re just not like that.”
A large surge of consolidation occurred in the U.S. funeral home industry in the late 1980s and early 1990s, and then again around 2010. Chris Kruger, an industry consultant from Phoenix. And acquisitions have reached a frenetic pace in the past two to three years. Many investors are counting on a significant increase in demand for aftercare services in the coming years as 73 million Baby Boomers, the oldest of whom will be in their 70s, continue to age.
“Obviously, demographics are in everyone’s favor here,” Krueger said. Funeral homes already have attractive profit margins, and networking them to share administration costs can further increase profits.
Meanwhile, many owner-operators of funeral homes are reaching retirement age, and there is no one in the family willing to take over their duties. A 2021 survey by the National Association of Funeral Homes found that 27% of owners plan to sell their business or retire within five years.
The desire to sell, combined with the investment money pouring into the area, has propelled funeral home prices to new heights. Before private capital turned its attention to funeral homes, they were selling three to five times their annual income. “Now I hear from seven to nine,” said Barbara Kemmisexecutive director of the Cremation Association of North America, a trade group for the cremation industry.
The value of funeral homes lies not only in their tangible assets. Funeral directors are often an integral part of their communities and have developed good relationships with their neighbors. So when corporate chains purchase these homes, they rarely change names and often leave the previous owners around to smooth the transition.
Tony Cumming, president of the NewBridge Group in Tampa, Florida, helps brokers sell funeral homes. Many of his clients remain skeptical of big firms and often take less money to sell to someone they think 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 abused. “I’m not saying that someone will take half of what another company offers,” Cumming said. “But now there are two big parts of the sale: it’s the money and the fit.”
Five years ago, when Robert Olthof decided to sell his family’s funeral home in Elmira, New York, he contacted several major public funeral home chains. But when representatives of several companies visited him to make their offers, Olthof realized that none of the major chains had sent someone who understood the service side of the business. “They sent their accountants and they sent their lawyers,” he recalled. “It was all about numbers, numbers, numbers. And I didn’t like it.”
Instead, Althof sold it to Greg Rollins, a former funeral director who built a private chain of 90-site funeral homes 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 go help a grieving family. He knew what it was like to bury a child.
“I can’t estimate in dollars how much it really costs to sell to a person who is himself a funeral director,” Olthof said. “Because your name will still be on the front of this building.”
Victoria Hahneman, a law professor at Creighton University who studies the funeral home industry, worries that new corporate ownership could be devastating for grieving families. “They don’t behave like normal, rational consumers,” she said. “They don’t do bargain shopping because death is considered an inappropriate time for bargain shopping.”
For most families, a funeral will be one of the biggest expenses they will ever incur. But they often enter the shopping process with cognitive impairment due to grief and unsure of what is accepted or appropriate.
Only one in five consumers visit more than one funeral home to get a price list. 2022 survey commissioned by the Consumers Federation of America. And online comparisons are almost impossible – the study The Funeral Consumers Federation and Alliance found that only 18% of funeral homes surveyed list their prices on their websites. As a result, families usually rely heavily on the expertise of a single funeral director who has a motive to sell them the most expensive options. Thus, consumers can be encouraged to purchase open-casket packages that include embalming and other services that add to the cost and may not be necessary.
“This is a kind of pickled, shellac, cosmeticized, preserved corpse, where will the future be? I’m not sure the answer is yes,” Hahneman said. “And I think there are investors who are betting that it isn’t.”
A prime example is the Foundation Partners group. Backed by private equity firm Access Holdings, the funeral home chain switched five years ago to acquiring funeral homes with high cremation rates. Cremation rates in the country have been steadily increasing over the past two decades. almost 58% families now prefer cremation to burial in a coffin. Foundation Partners expects this figure to reach 70% by 2030.
The company has acquired more than 75 businesses in states with high cremation rates, including Arizona, California, Colorado, and Florida. Most of these funeral homes average just over 150 funerals a year.
Individual funeral homes “don’t have access to marketing budgets, they don’t have access to insurance and medical plans, benefits and stuff,” said Robertson, CEO of Foundation Partners. “And because we have the ability to manage marketing and do other things, we’re also taking this 150-call firm to 200 calls.”
Robertson said the funeral home industry is different from other sectors that private equity firms can invest in, describing it as a vocation comparable to working in a hospice. According to him, Foundation Partners is lucky that their supporters understand the service part of the industry, as well as finance. “Private investment firms are not necessarily known for their deep compassion for people. They are more known for their financial returns,” he said. “Getting both is very important.”
Fund partners own Tulip cremation, an online service that allows people to book a cremation with just a few clicks—and without having to visit a funeral home. Tulip currently operates in nine states where Foundation Partners has funeral homes. The company expects the service to eventually operate nationally.
Hahneman said that innovative approaches like Tulip’s are badly needed in a funeral home industry that hasn’t changed much in 100 years. “It’s absurd to me that the average cost of a funeral is between $7,000 and $10,000,” she said. “People want less expensive options, and innovation will get us there.” Tulip charges less than $1,000 for cremation; the ashes are sent to the families.
“Private equity investment can go in one of two directions: either they are going to secure the status quo and stimulate prices, or the goal of investment will be destruction,” Hahneman said. “And the breakthrough promises to bring more accessible processes to market.”
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