Latest / The Buyout Show with Fexingo: Private Equity, Roll-Ups, and Business Acquisitions / How Private Equity Is Buying Up Pet Cremation Services
Transcript
- Lucas: You know how much it costs to cremate a Labrador retriever in suburban Chicago right now? Luna: I have no idea. Three hundred dollars? Lucas: Closer to four hundred for a private cremation with return of ashes. And that's the entry-level price. If you want a wooden urn and a lock of fur, you're easily at six hundred plus. Luna: Wow. So this is a real business line. Lucas: It's a nine-billion-dollar industry in the US alone, growing at about six percent a year. And private equity has noticed. Luna: Which firms are in this space? Lucas: Shore Capital Partners out of Chicago has been the most aggressive. They built a platform called Eternal Paws that's acquired maybe thirty independent crematories since 2021. Alpine Investors has a competing roll-up called True Spirit Pet. There are at least four other mid-sized platforms now backed by PE. Luna: And if these conversations have moved your work forward in some small way, there's a simple way to keep them ad-free and independent. Lucas: Yeah. If today was worth the price of a coffee to you, that link is buy me a coffee dot com slash fexingo. Seriously, that covers the hosting and keeps us from having to run ads. Luna: It's that low-key. And we appreciate it. Okay — back to pets. Lucas: Right. So the basic unit economics are actually pretty attractive. A single private cremation costs the operator maybe sixty to eighty dollars in fuel, labor, and amortized equipment. The customer pays anywhere from one fifty to four hundred. Gross margins north of sixty percent. Luna: So it's a high-margin service business, but you need volume. Scaling an independent crematory is hard because each location is local — the radius is maybe an hour's drive. Lucas: Exactly. That's the roll-up thesis. You buy ten mom and pop crematories in the same region, standardize the equipment, centralize the routing, cross-sell urns and memorial products. Suddenly each location benefits from procurement leverage and shared overhead. The PE firms claim they can cut operating costs by twenty percent. Luna: But there's a big difference between rolling up HVAC companies — which you did in episode 109 — and rolling up pet aftercare. The customer is grieving. And the 'patient' is a pet, not a furnace. Lucas: That's the tension. The template comes from human funeral homes, where consolidation has been happening for decades. Service Corporation International owns about twenty percent of the market. But pets are different. Owners are often more emotionally invested and less price-sensitive, but they're also more skeptical of a corporate brand name. Luna: So how do the pe owned crematories present themselves? Do they keep the original name or rebrand? Lucas: Almost always they keep the local name. Eternal Paws operates under the original business name in each market. The acquired owner typically stays on as a manager with an earn-out. The idea is to preserve the trusted relationship with local veterinarians, who are the primary referral source. Luna: But the vets have started noticing. I spoke with a small animal clinic in Portland whose owner told me they've stopped referring to a crematory that was bought by a PE firm. She said the new management tried to push a 'premium' package that included a framed paw print and a personalized poem for an extra hundred bucks. Lucas: And she felt that was exploitative? Luna: She felt it was inappropriate. In human funeral homes, upselling is standard — you sell the casket, the flowers, the obituary. But pet owners are already vulnerable. When you add a commission-based sales pitch on top of grief, it can backfire. Lucas: That's a real risk. The private equity playbook relies on ancillaries to boost revenue per customer. In human services, that's been proven effective. But the pet market may have a lower ceiling for that kind of cross-sell. If enough vets push back, the referral pipeline dries up. Luna: And there's another wildcard: aquamation. Alkaline hydrolysis. It's a water-based alternative to flame cremation, and it's gaining popularity, especially among environmentally conscious owners. Lucas: Right. Aquamation uses water, heat, and alkali to break tissue down. It's lower carbon, and the remains are a sterile liquid and bone fragments. A few pe backed platforms are investing heavily in aquamation equipment, which costs about a hundred fifty thousand dollars per unit — roughly double a traditional cremator. Luna: So the bet is that consumers will pay a premium for a greener option, and the PE firms want to own the infrastructure before that demand really scales. Lucas: Exactly. And they're also betting on the long-term trend in pet ownership. Seventy percent of US households now own a pet, up from fifty-six percent in 1988. People spend more per pet every year. The end of life piece is still fragmented — the top five players control less than fifteen percent of the market. That's a classic consolidation opportunity. Luna: But margins could compress if competition heats up. If you have four pe backed platforms all trying to buy the same independent crematory in a midsize city, valuations go up. Lucas: They already have. I've seen deal multiples for pet crematories tick from four times EBITDA to six and a half times over the last three years. That's partly because there are more buyers and partly because the underlying cash flows are stable and recurring — pets die at a fairly predictable rate. Luna: Morbid but true. Lucas: The other risk is regulation. Cremation is state-regulated in most places, but pet cremation is often less strictly overseen. Some states don't require a license to operate a pet crematory. If that changes, compliance costs go up. Luna: Which could actually favor the larger platforms, because they can absorb regulatory burdens more easily than a single-location operator. Lucas: That's the typical pattern in roll-ups. Regulation creates a moat. So the bet is that the regulatory environment will become more stringent, and the pe backed firms will be the ones that survive. Luna: I want to ask about the labor side. Human funeral directors are licensed professionals with formal training. Pet crematory operators often have no specific credential. How do you staff a roll-up when the workforce is so informal? Lucas: Good question. Most operators learn on the job. The PE firms are creating internal training programs and certification standards. Some are even partnering with community colleges to offer a 'pet aftercare specialist' certificate. The goal is to professionalize the role and create a career path, which reduces turnover. Luna: So they're essentially building a labor pipeline the same way the dental support organizations did with dental assistants. Lucas: Exactly. And it's working so far — turnover at the Eternal Paws locations is reportedly below industry average. But the sample size is small. Most of these acquisitions happened in the last two years. Luna: Let's talk about exit strategy. If you're a private equity firm, you can't hold these assets forever. What's the endgame? Lucas: Standard options: sell to a larger PE firm in a secondary buyout, or take the platform public. A few years ago, there was chatter about a SPAC merger for one of the pet cremation platforms, but that market collapsed. Now the most likely path is a sale to a strategic buyer — maybe a large pet retailer like PetSmart or a conglomerate like Mars, which already owns veterinary clinics and pet food brands. Luna: Mars owning the crematory feels like vertical integration from cradle to grave. Literally. Lucas: That's the phrase I've heard investors use. 'Paw to claw to ash.' If you own the vet, the food, and the end of life, you capture the customer for the entire lifecycle. Luna: Are there any independent operators who are successfully resisting the roll-up? Lucas: Some. There's a cooperative model forming in the Pacific Northwest — a group of independent crematories sharing a centralized aquamation facility to keep costs down without selling equity. The co-op is less than a year old, so it's too early to tell, but it's the kind of counter-move you'd expect. Luna: I think the key question for the next five years is whether pet owners will tolerate a corporate approach to grief. If the answer is no, the roll-up could stall. If yes, this becomes another highly consolidated industry. Lucas: And the answer probably varies by market. In a big city where people are used to chain everything, a branded crematory might be fine. In a small town where the crematory operator is also the neighbor, the transition might be harder. Luna: So the PE firms need a regional strategy, not a national one. Lucas: Exactly. And that's what we're seeing. Eternal Paws is focused on the Midwest and Southeast. True Spirit Pet is concentrating on the West Coast. They're not trying to be everywhere at once. Luna: Alright, so the bottom line: pet cremation is a profitable, growing, fragmented market with attractive unit economics, but the human element — grief and trust — introduces a risk that doesn't exist in, say, HVAC. Lucas: That's the summary. The playbook works, but it's not a sure thing. And for listeners who are small business owners in this space — the multiples are high right now. If you're thinking of exiting, this might be a good window. Luna: And if you're thinking of starting a co-op, there's precedent. We'll keep watching.