Nicole Vullo
on
Written by Sierra Heil, M&A Analyst
Despite challenges in the current market environment, such as a slowing economy, inflation, and rising interest rates, many funeral home owners and cemetery operators are focused on succession planning. A 2021 survey by the National Funeral Directors Association found that 27% of owners planned to sell their business or retire within five years, meaning we are likely to continue to see plenty of transaction activity despite potential economic obstacles.
Technology, shifting preferences, and changing demographics shape the nature of these transactions. While every business and community differs, careful strategic planning and awareness of changing landscapes can position an owner favorably when the time comes to sell.
Increasing Private Equity Investment & Consolidation
According to the NFDA, as of mid-2023, 89.2% of funeral home businesses are still independent and family owned. However, as the population of funeral home and cemetery owners ages, many without a familial or employee successor, it is likely the industry will continue to see interest from consolidators and Private Equity buyers. Private Equity backed firms have taken an increased interest in deathcare businesses, as the industry is still fragmented with many opportunities to take advantage of administrative, geographic, and technological synergies.
These firms can leverage economies of scale in purchasing goods and negotiating contracts, improve marketing reach, and share equipment or administrative functions. An estimate by Fortune magazine in 2022 indicates that 5% of the overall funeral home market is currently owned by private equity backed firms, with this number increasing. Owners who are not planning to sell to a relative or a key employee should be aware of their options.
Importance of Technology and Digital Marketing
Consumers are increasingly likely to seek online tools to help inform their decisions on large purchases. Following the loss of a loved one, many families are unsure how to approach the process of choosing a funeral home. A study by the federation and the Funeral Consumers Alliance found that only 18% of funeral homes sampled listed their prices on their website, and only 1 in 5 consumers took the time to check prices at multiple funeral homes. In an age where consumers increasingly rely on online information, reviews, and recommendations, creating a robust online presence can help drive traffic to your business. A well-maintained website with prices, employee information, location details, obituaries and testimonials can go a long way in driving interest and creating value for families.
Outside of the website, there are other ways owners can implement modern technology. Digital recordkeeping and documentation tools allow funeral homes to increase internal operational efficiency. Many firms utilize funeral planning and arrangement tools that allow directors to manage various aspects of the process from beginning to end. In some states, video-steaming became a norm during the COVID-19 pandemic for families unable to attend services in person, and now many consumers expect these types of offerings to be available. Proactive and deliberate investments in technology can increase efficiency and allow employees to focus on serving families.
Diversification of Services & Increased Personalization
The importance of memorializing loved ones has been consistent for generations, but the methods used to do so continue to change over time. The cremation rate in the United States reached 59% in 2022 according to the CANA annual statistics report. The COVID-19 pandemic, changes in religious and cultural acceptance, and interest in “green” or environmentally friendly options has accelerated this trend in the United States. According to the NFDA, the average cost of a viewing and burial was $7,848 as opposed to $6,971 for a viewing and cremation as of 2021, which can present a challenge as revenue streams shift. However, there are abundant opportunities to offer one-of-a-kind memorialization options to families.
Many businesses are diversifying their services and adding new lines of business such as pet crematories, tree burial, eco-friendly burial, and sea scattering, to name a few. These ancillary services offer families an exclusive and memorable experience while creating new revenue streams. Ashes can be preserved and displayed in many new and interesting ways, such as creating memorial jewelry and gems, fireworks, and even vinyl records.
While changes in consumer preferences and cultural norms might present initial challenges, owners who are aware of their communities needs and able to differentiate themselves through their offerings can continue to thrive. The future sale of your business may be a daunting task, but ongoing intentional planning and awareness of changing consumer preferences can best position owners to transition into retirement while not compromising what is most important – serving families.
Sources:
https://fortune.com/2022/09/22/death-care-funeral-home-industry-private-equity/