Posted by Charles
Marvellous news from last Wednesday’s Telegraph:
The Duke Street consortium, which includes Babson Capital Europe and Metric Capital Partners, has acquired LM Funerals from Sovereign Capital, a buy-out firm focused on investing in small companies.
LM Funerals is the third largest funeral company in Britain, with more than 60 branches – mainly in the Midlands and the south-east of England.
Sovereign bought LM Funerals in 2003 and used the company as a platform to consolidate what is a highly fragmented sector. Under Sovereign’s ownership, the company grew from 29 sites to 65 through a series of nine acquisitions and several new branch openings.
You’ll like this next bit:
Often the acquired businesses continued to trade under their original names after the deals were completed. This was done to ensure the “preservation of trusted local reputations and relationships that have been built over a sustained period”. [Source]
QUERY: If consolidation of a highly fragmented sector is a Good Thing, why the reticence about ownership?
FOLLOWUP QUERY: No mention of the benefits for consumers? (Oh, them.)
FACT: Sovereign Capital paid £11m for LM in 2003. They’ve sold for £37.5m. The deal therefore represents a 3.4 x return.
FACT: The name of the managing partner of Metric Capital Partners is John Synic. Really.
THE GFG SAYS: Take the money and run, boys. Trebles all round!!
Hat-tip to Andrew Plume.
Good grief. Talk about grist for the mill.
Not totally certain that the return is 3.4 x is it? They had to pay for the other 9 businesses they bought and the 27 new branches they opened in the time they owned LM didn’t they?
Very good point, Kingfisher, and I was dreading someone would make it. It was a figure quoted by other sources, it looked impressive to me, so I used it (I should explain that I am severely and officially innumerate). Whatever the numbers, I suppose that many grievers have enriched a few already quite well-off bosses.
Funny how we feel icky about people minting it from funerals but not from any other commodity. Or am I on my own in feeling that?
Yes, well Kingfisher, it’s easier to say that on exit, the mark-up was 3.4 times – it’s all ‘Vulture Capital’ press release stuff either way and it looks pretty impressive but who is really bothered?
These Vulture people are forever banging on about the fact that ‘the independents’ operate in ‘a fragmented way’ – probably because they’ve rebuffed past approaches and they remain sore about it………..
……….and finally, as I’ve said in this blog before, it’s the poor punter in the street who is going to pay for financing this ‘acquisition’ and for the sake of upsetting anyone at Duke Street (and their fellow investors), chaps… there are some real lemons and turkeys in this basket of branches, quite a few scarcely do anywhere the number of funerals pa when they were still privately operated……..but that’s all past history. imo previous management at LM have made some odd decisions re opening new branches, a case in point when they opened in Winchester, possibly nine or so years ago and closed last year – that’s because the local family brand name were always going to be way too strong. Anyhow quite enough from me
andrew
Charles, and following your comment:-
“FOLLOWUP QUERY: No mention of the benefits for consumers? (Oh, them.)”
That’s because there are NO benefits for consumers, it’s higher costs all the way ahead etc etc
regards
andrew
Oh dear. This acquisition seems to prove the old theory ‘there’s one born every minute.’ Sadly for the new owners, the one dying every minute quite often eludes LM owned firms. As posted, LM seem to have lost a lot of funerals since acquiring some funeral businesses.
I concur: Future clients of LM funeral services will pay the price for this take-over through more expensive funerals. The big boys need to sustain profit growth eh? The only way they can do so with a falling death rate, is to charge more for the work they do.
As with other UK groups – pretending to be ‘independent’ remains their preferred modus operandi. We must continue to work at informing the gullible public that they are not.
So no real change to the industry – just a transfer of ownership. Could have been a different matter if they were bought by one of the other big groups which would have increased consolidation. Bit far away from me to worry!
How many funerals would they do per year?
You can’t work out the return like that. They would have paid the £11m largely in loan notes of some kind, put a few million of equity in, paid off the debt from profits over time and realised the £37.5m, giving them a very high return on their equity investment. These private equity / venture capital companies are looking to make returns of around 30-40% pa on their equity investments. (I know, I used to work for one!)It looks like they would have achieved that.
I asked for a funeral directing quote from a branch of LM about 4 years ago. They quoted me £1150 for a willow coffin! That’s how they make their money. I phoned the Finance Director but he refused to talk to me.
Thank you for that expert financial analysis, Simon. Very grateful.
And for the depressing anecdote, too. I see Dick Turpin himself taking his hat off to that.
I read this article with interest, Charles, being that I am originally from the UK but now run funeral-related web sites in North America. Having been away from the UK for a number of years now, I am a little out of touch of the funeral home acquisition back home. We have exactly the same issues with Arbor Memorials in Canada and Dignity (SCI) in the US.
Without fail in every area of North America the corporate funeral home offers the most expensive funeral services in the area. Often I am amazed at how much the cost of a basic funeral can differ so dramatically in one town.
Having looked at LM Funerals web site I cannot believe how they can still boldly claim to be “independent” when they obviously are operating the corporate model. Personally I believe it is downright underhand to acquire an existing family business and still trade as if it is still a Mom & Pop business! Arbor and SCI do exactly the same, and day after day we speak to people who have absolutely no idea how the corporate death care industry really operates.