Latest / The Buyout Show with Fexingo: Private Equity, Roll-Ups, and Business Acquisitions / How Private Equity Is Buying Up Cremation Services
Transcript
- Lucas: So Luna, I came across a number this week that I haven't been able to shake: in 2025, for the first time, more than 60 percent of Americans who died were cremated. That's up from about 25 percent in the year 2000. Luna: That's a massive shift in a generation. And I'm guessing private equity has noticed. Lucas: They have. The death care industry — funeral homes, cemeteries, crematories — is one of those quiet corners of the economy that PE has been systematically consolidating for about two decades. But the cremation piece is heating up in a specific way. Luna: How so? I mean, cremation is usually cheaper than a burial, right? So where's the margin? Lucas: That's exactly the puzzle. A traditional burial with a casket, vault, plot, and service runs somewhere between seven and ten thousand dollars on average. A direct cremation — no service, no viewing — can be as low as fifteen hundred. At first glance, that looks like a thinner business. Luna: But the operators I've looked at say the margins are actually better on cremation. Am I remembering that right? Lucas: You are. The gross margin on cremation can run 70 to 80 percent, compared to maybe 40 to 50 percent on a full burial. The reason is simple: you're selling a service that uses a $200,000 retort — that's the furnace — plus some labor and an urn. No expensive inventory of caskets, no cemetery plot to maintain, no refrigeration. The unit economics are lean. Luna: And volume matters. If you own a crematory that can process four or five bodies a day, the fixed cost of the retort gets spread across a lot of revenue. Lucas: Exactly. And that's the PE pitch. Consolidate independent funeral homes, route their cremation volume through a central crematory, and capture the scale. The big player here is Service Corporation International — ticker s c i — which owns about 2,000 funeral homes and 500 cemeteries. They do about 400,000 cremations a year. Luna: But SCI is publicly traded, not PE. Who are the private equity firms doing the rolling up? Lucas: The most active one I've tracked is a firm called StoneMor Partners — though they've restructured. And there's a newer player, Foundation Partners Group, backed by the PE firm Olympus Partners. They've bought about 30 funeral homes and crematories since 2018. There's also Everstory, which is backed by a firm called Sivanto Capital — they focus specifically on cremation. Luna: So the playbook is the same as dental or vet: buy independents, centralize operations, brand them under a single name. Lucas: With one twist. Funeral homes are intensely local and relationship-driven. People don't shop around for a cremation the way they'd price-shop an HVAC repair. So the roll-up typically keeps the original funeral home name on the door. The consolidation is invisible to the consumer. Luna: That's actually smart. The last thing you want is a family grieving and feeling like they're dealing with a corporate machine. Lucas: Right. And the economics also benefit from a demographic tailwind that's just getting started. The baby boom generation — about 70 million people — is now entering the age range where death rates accelerate. The peak death years in the U.S. are projected to hit around 2035. So the volume is going to increase steadily for the next decade. Luna: Let's talk about the specific numbers. What's the typical acquisition multiple for a funeral home? Lucas: Independents trade at about 6 to 8 times EBITDA, depending on location and whether they own the real estate. A crematory with high volume can fetch 8 to 10 times. Compare that to HVAC or pest control, which often trade at 10 to 12 times, and death care looks cheap. The reason is stigma — less competition from other PE firms. Luna: And the margin expansion after consolidation. What does that look like? Lucas: A typical independent funeral home does maybe 100 to 150 calls a year — a 'call' is a death they handle. Its EBITDA margin might be 15 to 20 percent. After consolidation, a pe owned platform can push that to 30 percent by centralizing purchasing, using one crematory for a region, and cross-selling pre-need contracts — where families pay in advance. Luna: Pre-need is a big part of the model, right? Because you collect the money years before you deliver the service. Lucas: It's essentially a float business. You take $5,000 from a customer today, invest it in a trust or an insurance product, and when they die 15 years later, the cost has likely gone up, but the trust has also grown. If you manage it well, that's an additional 3 to 5 percent return on top of the operating margin. Luna: That's a nice layer. But what's the downside? Why aren't all PE firms piling into this? Lucas: Two big barriers. First, regulation. Most states have strict rules about funeral home ownership — some require that a licensed funeral director own at least 25 percent of the business. That limits how much equity a PE firm can hold. Second, the labor pool is shrinking. The average funeral director is in their late 50s, and fewer young people are entering the field. Luna: So you're buying a business where the key employee — the licensed director — is hard to replace. Lucas: Exactly. That's why the biggest risk in a funeral home roll-up is retention. If the owner-director leaves after the sale, you may not have a qualified person to run the place. PE firms have started offering earn-outs and equity stakes to keep the director on for three to five years. Luna: Let's zoom in on one deal. Do you have a favorite example? Lucas: Foundation Partners Group bought a chain called 'The Gardens of...' actually, let's stick with one that's well documented. In 2021, Olympus Partners acquired a platform called 'Green Cremation' — a network of crematories in the Southeast. They paid about $150 million, which valued each crematory at roughly $5 million. Those crematories now process about 3,000 cremations a year each. Luna: So that's about $10 million in revenue per crematory at $3,000 per cremation, assuming some upselling. Not bad. Lucas: And with a 70 percent gross margin, that's $7 million in gross profit. After SG&A, you're looking at maybe $3 million EBITDA per site. That's a 60 percent EBITDA margin on a $5 million asset. That's an incredible return. Luna: Why aren't more people talking about this? Lucas: It's a death taboo. People don't want to think about it. But the numbers are compelling. And I think we'll see more activity as the boomer wave accelerates. Already, SCI is buying smaller chains, and PE is circling the next tier of regional operators. Luna: So if you're an investor looking at this space, what's the one metric you watch? Lucas: The cremation rate in the target market. If it's above 65 percent, the margin potential is high because the infrastructure is already there. If it's below 40 percent, you're betting on a trend that may take longer. Also, look at the average age of the funeral directors in the acquisition target. That tells you the retention risk. Luna: That's a good practical takeaway. And I guess it's also worth noting that the cremation rate is higher in the West — like Oregon and Washington are above 75 percent — and lower in the South and Midwest. Lucas: Exactly. Geography matters a lot. Florida, interestingly, is high because of the retiree population, but the funeral home density there means competition is fierce. The best opportunities might be in states like Arizona and Colorado, where the rate is high but the market is less consolidated. Luna: Alright, so we've covered the playbook, the margins, the risks. I'm curious — have you ever thought about how this industry might change if direct to consumer cremation startups like 'Tulip' or 'Eirene' gain traction? Lucas: Those are interesting. They offer online ordering of cremation, with prices as low as $1,000. They ship an urn to your door. But they still need a licensed funeral director in each state to handle the paperwork. So they're more of a marketing layer on top of the existing infrastructure. I think pe backed platforms could actually partner with them or buy them. Luna: That's a fair point. The asset is the retort and the license, not the brand. Lucas: Speaking of things that matter more than brand, I want to circle back to something you mentioned earlier about the quality of the conversations we have on this show. We've dug into a lot of niche roll-ups over the past 60 episodes, and I think one reason we can go deep is that we don't have to pander to advertisers. Luna: Yeah, that's a deliberate choice. We'd rather keep the show ad-free and let the content speak for itself. If these episodes have moved your thinking forward in some small way, that's the goal. Lucas: And if you want to support that mission, there's a simple way. It's buy me a coffee dot com slash fexingo. No pressure, no perks, just a way to keep this independent. We'll keep digging into the weird corners of private equity either way. Luna: Absolutely. And speaking of weird corners — what about the pet cremation space? We've done an episode on that, but I think there's another layer around how human cremation and pet cremation are sometimes housed in the same facility. Lucas: That's a great next topic. For now, let's wrap with this: the cremation roll-up is slow, steady, and demographic-driven. It's not flashy, but the math works. And as boomer deaths peak in the next decade, the returns could be significant. Luna: And just like that, we've turned death into a spreadsheet. Thanks, Lucas. Lucas: Thanks, Luna. Until next time.