Latest / The Buyout Show with Fexingo: Private Equity, Roll-Ups, and Business Acquisitions / How Private Equity Is Consolidating the Cremation Industry
Transcript
- Lucas: So Luna, I want to talk about an industry where PE firms have been quietly buying up mom and pop operators for years, but it's an industry most people don't think about until they absolutely have to. Luna: Death care, right? Funeral homes, cemeteries, crematories. Lucas: Exactly. And specifically, the cremation side of it. Because here's the thing — the US cremation rate has gone from about 25 percent in the year 2000 to over 60 percent today. By 2035, it's projected to hit nearly 80 percent. Luna: That's a massive shift. And where there's a structural trend, there's usually private equity looking to roll it up. Lucas: Right. And the economics are pretty compelling from an investor's standpoint. A traditional burial with a casket, vault, and plot can run $8,000 to $10,000 or more. A cremation — especially direct cremation with no service — averages around $2,500. So the revenue per customer is lower, but the volume is exploding. Luna: And the margins? I've seen some bigger operators claim 30 percent EBITDA margins on cremation services. That's attractive for a consolidator. Lucas: It is. And one of the most interesting players right now is a company called Everstory. They're a pe backed platform that started acquiring funeral homes in the Southeast in 2021. They've done 47 deals in about five years. Mostly small independent operators in Georgia, the Carolinas, Florida. Luna: And what's the pitch to the seller? 'Keep your name on the door, we handle the back office'? Lucas: That's exactly the playbook. The founding family stays on to run the location, usually with a multi-year earnout. The PE firm centralizes procurement, marketing, accounting, and — crucially — the cremation technology. They can negotiate better pricing on cremation containers, urns, and even the fuel for the retorts. Luna: Retorts being the furnaces. That's a real scale advantage — a single retort costs $50,000 to $100,000. If you can run it at higher utilization across multiple homes, the unit economics improve fast. Lucas: And that's where the tension comes in. Because this is an industry built on personal relationships and trust. Families are making decisions at an emotionally vulnerable moment. If the consolidator pushes too hard on efficiency — say, routing all calls to a central call center instead of the local funeral director — you risk alienating the community. Luna: Right. And there's data on this. A 2023 study from the funeral industry journal showed that customer satisfaction scores at pe owned homes were about 8 percent lower than at independents, driven mostly by perceived lack of personalization. Lucas: So the roll-up model works on paper, but execution risk is real. And that's before you get to regulatory risk. Funeral home licensing varies by state. Some states have moratoriums on new licenses or restrictions on who can own a funeral home. In Louisiana, for example, only a licensed funeral director can own a home. That blocks the pure financial buyer. Luna: It's a fragmented market. There are about 19,000 funeral homes in the US, and the top five companies control maybe 30 percent of the market. So there's a long tail of acquisition targets. But the target is getting smaller, too, as the large independents get bought up. Lucas: And that's where we're seeing a new trend: the rise of 'direct cremation' startups that are basically digital-first, no-frills operators. Companies like Tulip Cremation and Lumen offer cremation for under $1,000 with online booking. They're not buying funeral homes — they're building their own low-cost facilities from scratch. Luna: That's a different threat to the PE roll-up model. If the consumer starts to see cremation as a commodity, the pricing power vanishes. And the margin compression hits everyone. Lucas: Yeah. So you have three forces: the traditional roll-up trying to buy local goodwill, the digital disruptors chasing volume, and the giant publicly traded player — Service Corporation International, which owns about 2,000 funeral homes and 500 cemeteries. They've been consolidating since the 1960s. Luna: And what's their margin look like compared to a newer platform like Everstory? Lucas: SCI's funeral segment runs about 28 percent EBITDA margins. Everstory, being smaller and newer, is probably in the low 20s but aiming for 30 as they integrate. The key metric to watch is 'cases per location' — how many cremations or funerals each home handles per year. The industry average is around 120. pe backed homes need to push that to 150 or 160 to hit their return targets. Luna: That's a big ask without alienating the customer base. You're basically asking families to accept a slightly more transactional experience. Lucas: And that's the core tension. Honestly, if today was worth a coffee to you, that's the link — buy me a coffee dot com slash fexingo. Luna: Yeah, listener support is what keeps this show ad-free and lets us drill into these niche corners. Lucas: So back to the margins — I think the most interesting question is whether the cremation roll-up can avoid the mistakes we saw in auto body repair and dental. Those industries got over-consolidated, debt loads were too high, and when demand softened, a lot of platforms went under. Luna: Death care is more recession-resistant, but it's not recession-proof. People still die, but they might trade down from a $3,000 cremation to a $1,200 direct cremation. That's a 60 percent revenue drop for the same volume. Lucas: Exactly. And the PE funds that bought at 8x or 9x EBITDA are banking on 4 to 5 percent annual volume growth plus margin expansion. If they only get volume growth without margin expansion, the returns are mediocre. If they get margin compression because of the digital competition, the returns could be negative. Luna: So the thesis hinges on whether families will pay a premium for the local trusted brand even after it's owned by a PE firm. What does the evidence say so far? Lucas: Mixed. Some markets — like Birmingham, Alabama — have seen pe owned homes maintain market share because they kept the original staff and just improved the facilities. Others — like in the Atlanta suburbs — saw a 15 percent drop in market share within two years of acquisition, because the corporate branding became too visible. Luna: So the playbook matters more than the industry. Slow integration, keep the local name, don't change the phone number. Lucas: Exactly. And the smartest operators are doing something else: they're building their own direct cremation brand under the same corporate umbrella. So Everstory might own 'Johnson Family Funeral Home' for traditional customers and also run 'Simple Farewell' for the price-sensitive online booker. They serve two segments with the same retort. Luna: That's capital-efficient. But it also creates a brand conflict — the family paying $3,000 for a personalized service might feel misled if they find out the same company offers a $900 online option. Lucas: That's a real risk. And some states have 'funeral rule' regulations that require transparency about ownership. The FTC's Funeral Rule already mandates that customers be given a general price list on request. If the consumer digs deeper, they can find the corporate parent. Luna: So what's the exit for these PE investors? Typically it's a sale to a larger platform or a secondary buyout. But if the returns are modest, the IPO market might not be there. Lucas: Right. A company like Everstory would need to hit maybe 100 locations and $50 million in EBITDA before a strategic buyer like SCI would pay top dollar. That's doable, but it requires disciplined execution over several more years. And the competition for deals is heating up — there are at least a dozen pe backed funeral platforms now. Luna: So we might be in the early innings of a consolidation wave that ends with a handful of national players controlling the majority of cremation services. Lucas: That's the likely outcome. And when that happens, the question becomes whether the consumer benefits from lower prices through scale, or loses out because choice is reduced. Historically, in funeral services, prices have risen faster than inflation even as consolidation increased. Luna: So the roll-up might be good for investors but not necessarily for families. And that's the tension we keep coming back to in this show. Lucas: Yeah. And it's worth watching because the demographic wave is real — the baby boomers are now in their 70s and 80s. The cremation rate will keep climbing. The only question is who captures that value, and at what cost to the consumer. Luna: Sounds like a sector to keep an eye on. Lucas: Definitely. And that's our show for today. Until next time.