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 want to start with a number: 60.4 percent. Luna: That's the US cremation rate, right? Lucas: Exactly. As of 2024, according to the National Funeral Directors Association. Back in 2000 it was barely 25 percent. And by 2035 they project it'll be close to 80 percent. That shift is reshaping an entire industry. Luna: And where there's a structural shift, private equity tends to show up. Lucas: They've been here for a while actually. The big player everyone knows is Service Corporation International — SCI. Trades on the NYSE under SCI. Market cap around twelve billion dollars. They own about 1,500 funeral homes and 450 cemeteries across North America. Luna: That's enormous. But they're not PE — they're a publicly traded company that grew through acquisitions. Lucas: Right, but the roll-up playbook is the same. SCI started buying independent funeral homes in the 1960s. By the 1990s they were on a tear. And now you've got PE firms doing the same thing at a smaller scale. Firms like Aterian Investment Partners — they've been consolidating crematoriums in the US and Canada. Luna: What's the pitch? Cremation is cheaper than burial, so margins might be thinner. Lucas: That's the interesting part. A cremation typically costs around two thousand five hundred dollars. A full burial can be eight thousand or more. But cremation has a much higher volume potential. Plus, you can upsell — urns, memorial services, scattering ceremonies. And then there's the pre-need contract. Luna: Pre-need — that's where someone pays for their own funeral in advance, right? Lucas: Exactly. Pre-need contracts generate a float. The money gets invested and the funeral home earns the returns. It's a bit like an insurance float. SCI has billions in pre-need trust funds. That's a very sticky, long-duration revenue stream. Luna: So the PE pitch is: buy a bunch of family-owned funeral homes, centralize the back office, push pre-need sales, and maybe consolidate cremation volume into a few high-throughput facilities. Lucas: That's exactly right. One example is Carriage Services — they're publicly traded, ticker CSV on the NYSE, but they operate like a consolidator. They've been acquiring about ten to fifteen funeral homes per year. In their 2025 annual report they said they're focusing on 'high-growth, high-return markets' — basically Sun Belt cities where population is growing and cremation rates are climbing fast. Luna: But there's an ethical dimension here that I think listeners might wonder about. Death care is deeply personal. When a private equity firm buys the local funeral home, how much does the experience change? Lucas: That's the tension in the whole thesis. Families often want a familiar face. The consolidators argue they bring better pricing and more options — they can offer cremation, green burial, memorial video streaming, things a mom and pop might not be able to afford. Critics say you lose the personal touch and prices actually go up once competition is eliminated in a given area. Luna: There was a big FTC report on that a few years ago — they found that funeral home prices are higher in markets with less competition. And consolidation reduces competition. Lucas: Right. So the regulatory risk is real. But the demographic tailwind is undeniable. The baby boomer generation is aging into their final decades. About ten thousand people turn 65 every day in the US. That's a lot of eventual customers. Luna: And cremation is increasingly normal. Even many religious groups that traditionally opposed it have become more accepting. Lucas: The Catholic Church gave a green light in 1963. But it took decades for the numbers to shift. Now it's the majority choice. And that's attracting capital from outside the traditional funeral industry. There are even venture-backed startups trying to disrupt cremation — direct to consumer services that arrange everything online. Luna: Like Tulip Cremation or something similar? Lucas: Yeah, companies like Tulip and Solace Cremation. They offer direct cremation for under a thousand dollars, all arranged on a website. They contract with independent crematoriums. It's a low-overhead model that puts pressure on traditional funeral homes. Luna: So the incumbents — SCI, Carriage, the PE roll-ups — they have to compete with these startups on price, while also maintaining their local relationships. That's a tough balancing act. Lucas: It is. And one way they're doing it is through vertical integration. Buying crematoriums ensures they control the supply. Some are even buying cemetery land, because space for burials is finite and valuable in urban areas. Luna: There's also the environmental angle. Green burial is growing, but cremation has a carbon footprint. Each cremation uses about the same energy as a 500-mile car trip. Some states are starting to regulate emissions from crematoriums. Lucas: That's a good point. There's a newer alternative called alkaline hydrolysis — water cremation — which uses less energy. It's legal in about 30 states now. SCI and others are investing in that technology. But it's still a small fraction of the market. Luna: So where does private equity fit in specifically? Are there any recent deals you're tracking? Lucas: Yeah, Aterian Investment Partners has been active. They formed a platform called Evergreen Cremation in 2022 and have been acquiring crematoriums across the Midwest and Southeast. They don't disclose financials, but from what I can tell they've done at least a dozen add-on acquisitions. Another firm, HKW Capital, has a platform called Foundation Partners Group that owns about 50 funeral homes and crematoriums. Luna: It's a fragmented market — basically a long tail of independents. The top 10 players own maybe 20 percent of funeral homes. So there's plenty of room for consolidation. Lucas: Exactly. And the barriers to entry are relatively low — you don't need a huge facility for cremation. A single retort unit costs maybe fifty to a hundred thousand dollars. So you can start small and grow. Luna: That also means roll-up math works if you can centralize fixed costs like marketing, compliance, and IT. Lucas: And that's the playbook. It's not unique to death care — we've seen it in veterinary clinics, dental practices, even dog daycares. But the difference here is the emotional weight. You can't treat a grieving family the same way you treat someone dropping off their dog. Luna: I think that's why the best operators in this space emphasize that they keep the local brand and staff. They don't slap a corporate logo on the building. Lucas: Right. It's a 'buy and hold' strategy, not a 'buy and strip' strategy. The value is in the trust the local director has built over decades. You destroy that if you change the sign. Luna: Speaking of trust — I know we've been doing these episodes for a while, and people keep telling us they find them useful for understanding where their money goes. If that's you, there's a small way to keep this show ad-free. Lucas: Yeah, it's just a simple link — buy me a coffee dot com slash fexingo. The minimum amount is literally a coffee. And it genuinely helps us keep the lights on and avoid running ads. Luna: No pressure at all. But if this episode made you think differently about an industry you encounter every day, that's the kind of value we try to deliver. Lucas: Alright, back to death care. One more angle I want to hit — the international picture. In Japan, the cremation rate is over 99 percent. In the UK it's about 78 percent. The US is still catching up. And PE firms in those markets are also consolidating. There's a UK company called Dignity that's been a takeover target. Luna: So the same demographic trends are global. Aging populations everywhere. Lucas: Exactly. And the cultural shift toward simpler, cheaper funerals is also global. So I think we'll see more cross-border consolidation. A us based roll-up might acquire a chain in Canada or the UK. Luna: That's interesting. But it also raises questions about regulatory differences. Funeral regulations vary a lot by country. Lucas: They do. But the core business model — pre-need contracts, consolidating cremation volume, centralizing back office — translates pretty well. And the margins are resilient. People die regardless of the economy. Luna: That's the grim but honest truth. It's a recession-proof industry. Lucas: Exactly. So for investors, it's a defensive play with a growth tailwind from cremation adoption. And for private equity, it's a classic roll-up story — fragmented, relationship-based, with clear economies of scale. Luna: I guess the final question is: when will the market be fully consolidated? Is there an endgame? Lucas: Probably not in our lifetimes. There are still something like 19,000 funeral homes in the US, and most are independents. The top four players have maybe 25 percent market share. So there's decades of consolidation ahead. And each time a baby boomer funeral director retires without a successor, that's another acquisition opportunity. Luna: So the roll-up continues. And we'll keep watching. Lucas: We will. Next episode — maybe we'll look at pet cremation. That's a whole other sub-industry growing fast. Luna: Let's do it.