Latest / The Buyout Show with Fexingo: Private Equity, Roll-Ups, and Business Acquisitions / How Private Equity Is Rolling Up Funeral Homes
Transcript
- Lucas: So the average American funeral costs somewhere between eight and ten thousand dollars. Flowers, casket, embalming, the service itself. It's one of those purchases you don't shop around for — you're grieving, you're on a timeline, and the local funeral home is usually the only name on your list. Luna: Which makes it a pretty interesting target for private equity, I'd imagine. Fragmented, emotionally sticky, repeat-ish business. Lucas: Exactly. And that's exactly what's been happening. Over the last decade, private equity firms have been quietly rolling up funeral homes across the US. We're talking hundreds of independent operators being bought and consolidated into regional and national platforms. Luna: How quiet are we talking? I don't think most people realise their local funeral home might be owned by a pe backed holding company. Lucas: Very quiet. The biggest player in the space is Service Corporation International — SCI — which is actually publicly traded, ticker symbol s c i. They own close to two thousand funeral homes and about five hundred cemeteries. But the mid-market roll-up is happening beneath that, firms you've never heard of. Luna: Okay, so give me a name. Who's active right now? Lucas: Stone Peak Partners, for one. They've been building a platform called Everstory — that's a funeral home and cemetery roll-up. Alpine Investors is another — they bought a company called Funeral Directors Life, which is actually a pre-need insurance provider, but it's tied to funeral homes. And there's a firm called LDC — they own Legacy Funeral Group, which is somewhere around three hundred homes. Luna: Pre-need insurance — that's when people prepay for their funeral, right? Lock in today's prices. Lucas: Right. And that's part of the appeal. A funeral home isn't just a service business — it's a vehicle for a very predictable cash flow stream. The average funeral home does maybe one to two million in revenue, with EBITDA margins in the twenty to twenty-five percent range. That's stable. People die at a fairly consistent rate. Luna: Morbid, but true. So the unit economics are solid. But what's the thesis for the roll-up? Why not just buy one funeral home and call it a day? Lucas: Because one funeral home is just that — one location. The real value comes from buying ten, twenty, fifty of them, then centralising everything you can. Back-office, payroll, procurement of caskets and embalming fluid. You can negotiate better pricing from suppliers. You can cross-sell pre-need insurance. You can even standardise the service packages. Luna: But that's where I start to get uneasy. If you standardise a funeral, doesn't it start to feel… transactional? Part of the value of a local funeral home is that the director knows the family, knows the church, knows what the deceased liked. Lucas: That's the tension. And the PE firms know it. They're careful not to slap a corporate logo on the building. The home keeps its original name, the same director stays on — often with an earn-out or equity stake. The branding stays local. The consolidation is invisible to the consumer. Luna: So the family thinks they're dealing with Miller & Sons Funeral Home, but actually it's owned by a PE fund out of Dallas. Lucas: Exactly. And the economics of that are compelling. Let me give you a concrete example. A typical independent funeral home might have one owner, maybe two. They're often aging — the average funeral director is in their late fifties. They want to retire, but they don't have a succession plan. A PE firm comes in, offers three to five times EBITDA — call it three to six million dollars for a solid single-location business — and the owner gets liquidity. Luna: And what does the PE firm get? A 25% EBITDA margin business with a local monopoly in a small town. Lucas: Right. And the death rate is only going up. The baby boomer generation is entering its eighties. By 2040, the US death rate is projected to be about twenty percent higher than it is today. That's a demographic tailwind you can bank on. Luna: So the demand side is growing. But what about supply? Are there barriers to entry that protect these funeral homes from competition? Lucas: Significant ones. The FTC's Funeral Rule requires itemised pricing and prohibits misrepresentation, but it also creates compliance costs. State licensing is another hurdle — you need a funeral director's license, which requires two years of mortuary science school and an apprenticeship. That keeps the number of new entrants low. Luna: Plus, I imagine zoning and local regulations make it hard to open a new funeral home in a town that already has one. Lucas: Exactly. And there's the emotional barrier — no one wants to open a funeral home as a side hustle. It's a calling, not a get rich quick scheme. So the incumbents are protected. Luna: Let's talk about the bigger picture. SCI — the publicly traded giant — has been doing this for decades. Are they the model that the PE firms are copying? Lucas: To some extent. SCI started consolidating in the 1960s. They've had their ups and downs — they overpaid in the 1990s and had to write down assets. But today they're the 800-pound gorilla. PE firms are trying to replicate that playbook but on a smaller scale, with less debt, and with a faster exit. Luna: What's a typical hold period? Five years? Seven? Lucas: Three to seven years, depending on the fund. The idea is to buy a platform of maybe fifteen to twenty homes, squeeze out operational efficiencies, grow EBITDA, then sell to a larger consolidator — maybe SCI itself, or another PE firm — at a higher multiple. Luna: So there's a kind of food chain. Small independents get bought by mid-market PE. Mid-market platforms get bought by larger PE or by SCI. Eventually it all ends up in a few hands. Lucas: That's the trajectory. And it raises a real question — does consolidation actually improve the quality of service? Because on one hand, a larger firm can invest in technology, training, and facilities. On the other, you lose the personal touch that comes from a single owner-operator. Luna: I've heard stories of families being upsold on unnecessary services — like an expensive casket when a simple one would do. Is that more common in corporate-owned homes? Lucas: It's hard to prove, but the incentive structure is different. An independent owner might know the family and not want to push. A manager at a corporate-owned home may have revenue targets. The FTC's Funeral Rule does require itemised pricing, but grief-stricken families rarely comparison-shop. Luna: And that's the truth. So what's the net effect? Are we better off with consolidation or not? Lucas: I think it's a trade-off. For the owners who sell, it's a retirement windfall. For the families, the price may be slightly higher — studies suggest corporate-owned homes charge about ten to fifteen percent more for similar services. But the convenience of a larger network — say, if you need to transfer a body across state lines — might be better. Luna: And for the employees? Funeral directors working for a corporate chain might get better benefits, but they also get less autonomy. Lucas: That's the story in almost every PE roll-up. The people doing the actual work often feel the squeeze. But the capital flows in because the numbers work. Luna: If today's conversation has been useful to you — and I hope it has — the way this show stays ad-free is through listener support. You can find us at buy me a coffee dot com slash fexingo. It's a small gesture that keeps these deep dives coming. Lucas: Yeah, we really appreciate that. No ads, no sponsors — just the topic. So if you find value in it, that link is there. Luna: So back to the numbers — you mentioned that the US death rate is projected to rise twenty percent by 2040. How are the PE firms positioning for that? Lucas: They're buying in markets with older demographics — Florida, Arizona, the Rust Belt. And they're also expanding into related services: cremation, which is cheaper but lower margin, and pre-need sales, which lock in revenue years in advance. Luna: Cremation rates are rising too, right? It's now over fifty percent in the US. Lucas: Yes, and that changes the unit economics. A cremation generates maybe two to three thousand dollars in revenue versus eight to ten for a full burial. So to maintain revenue, operators need higher volume. That favours consolidation — you need scale to keep the cremation business profitable. Luna: Interesting. So the roll-up isn't just about buying market share — it's also a response to changing consumer preferences. Lucas: Exactly. The industry is evolving, and the small independent homes that can't adapt — or don't have the capital to invest in cremation technology — are the ones that become acquisition targets. Luna: So what's the next frontier? Are we going to see PE move into pet funeral services? Or green burials? Lucas: Both are happening. Pet funeral services are already being rolled up — we covered that in a prior episode. Green burials are still niche, but they're growing. I think you'll see PE firms acquire a few early leaders and try to standardise that model too. Luna: It seems like there's no corner of the death industry that private equity won't touch. Lucas: That's the thing about private equity — if it generates predictable cash flow and has a fragmentation problem, someone is going to try to consolidate it. The question is whether the end result is a more professional, efficient industry or just a more expensive one. Luna: And I guess the answer depends on whether you're the seller, the buyer, or the family saying goodbye. Lucas: Exactly. And that's the lens we try to bring to every roll-up we cover on this show.