Death is anything but a dying business as private equity cashes in

Private equity firms are investing in health care from cradle to grave, and in that latter category quite literally. A small but growing percentage of the funeral home industry — and the broader death care market — is being gobbled up by private equity-backed firms attracted by high profit margins, predictable income, and the eventual deaths of tens of millions of baby boomers.

The funeral home industry is in many ways a prime target for private equity, which looks for markets that are highly fragmented and could benefit from consolidation. By cobbling together chains of funeral homes, these firms can leverage economies of scale in purchasing, improve marketing strategies, and share 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 remain 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 those.

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 master that’s being served is not the grieving family who’s paying the bill — it’s the shareholder,” 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 local affiliates of the alliance have found that when publicly traded or private equity-backed chains acquire individual funeral homes, price hikes tend to follow.

In Tucson, Arizona, for example, when a local owner sold Angel Valley Funeral Home in 2019 to private equity-backed Foundation Partners Group, prices increased from $425 to $760 for a cremation, from $1,840 to $2,485 for a burial with no viewing or visitation, and from $3,405 to $4,480 for a full, economical funeral.

In the Arizona city of Mesa, the sale of Lakeshore Mortuary to the publicly traded funeral home chain Service Corporation International led to price increases for a cremation from $1,565 in 2018 to $1,770 in 2021, for a burial from $2,795 to $3,680, and for an economical funeral from $4,385 to $5,090.

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

On Long Island, the average cost of a full-service funeral with burial was $9,744 in 2020, excluding cemetery fees, according to Funeralocity, a funeral planning information provider. That was 31% higher than the national average of $7,422.

A big surge of consolidation happened in the U.S. funeral home industry in the late 1980s and early 1990s, and again around 2010, said Chris Cruger, a Phoenix-based consultant to the industry. And acquisitions have reached a feverish pace in the past two to three years. Many investors are banking on a significant uptick 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 obviously in everybody’s favor here,” Cruger said. Funeral homes have attractive margins already, and combining them into chains to share administrative costs could boost profits even more.

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

The desire to sell, combined with the investment money pouring into the field, has driven prices for funeral homes 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 Kemmis, executive director of the Cremation Association of North America, a trade group for the cremation industry.

The value in funeral homes lies in 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 homes, they rarely change the name and often keep the former owners around to smooth the transition.

Tony Kumming, president of the NewBridge Group in Tampa, Florida, helps broker funeral home sales. Many of his clients remain skeptical of the large firms and often will take less money to sell to someone they believe won’t stain their hard-earned reputations. Most former owners plan to live in the community and don’t want their friends and neighbors to be mistreated. “I’m not saying someone is going to take half of what another company is offering,” Kumming said. “But there’s two big pieces to a sale now: That’s money and the right fit.”

Five years ago, when Robert Olthof decided to sell his family’s funeral home in upstate Elmira, he contacted some of the large publicly traded funeral home chains. But as representatives from multiple companies visited him to make their offers, Olthof realized that none of the big chains had sent someone versed in the service side of the business. “They sent their accountants, and they sent their lawyers,” he recalled. “Everything was about the numbers, the numbers, the numbers. And I didn’t like that.”

Instead, Olthof sold to Greg Rollings, a former funeral director who had amassed a privately owned, 90-site chain of funeral homes throughout the Northeast. Rollings had offered less money than the big chains had, but he knew what it was like to be awoken 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 put a dollar-amount value on how much it’s really worth selling to a person who is a funeral director themselves,” Olthof said. “Because moving forward, your name is still going to be on the front of that building.”