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Death is anything but a dying business as private equity cashes in on the $23 billion funeral home industry

Private equity firms are investing in health care from cradle to grave, and in that latter category quite literally. A small but growing percentage of the funeral home industry—and the broader death care market—is being gobbled up by private equity-backed firms attracted by high profit margins, predictable income, and the eventual deaths of tens of millions of baby boomers.

The funeral home industry is in many ways a prime target for private equity, which looks for markets that are highly fragmented and could benefit from consolidation. By cobbling together chains of funeral homes, these firms can leverage economies of scale in purchasing, improve marketing strategies, and share administrative functions.

According to industry officials, about 19,000 funeral homes make up the $23 billion industry in the U.S., at least 80% of which remain privately owned and operated—mostly mom and pop businesses, with a few regional chains thrown in. The remaining 20%, or about 3,800 homes, are owned by funeral home chains, and private equity-backed firms own about 1,000 of those.

Consumer advocates worry that private equity firms will follow the lead of publicly traded companies that have built large chains of funeral homes and raised prices for consumers. “The real master that’s being served is not the grieving family who’s paying the bill—it’s the shareholder,” said Joshua Slocum, executive director of the Funeral Consumers Alliance, a nonprofit that seeks to educate consumers about funeral costs and services.

Although funeral price data is not readily available to the public, surveys by the local affiliates of the alliance have found that when publicly traded or private equity-backed chains acquire individual funeral homes, price hikes tend to follow.

In Tucson, Arizona, for example, when a local owner sold Angel Valley Funeral Home in 2019 to private equity-backed Foundation Partners Group, prices increased from $425 to $760 for a cremation, from $1,840 to $2,485 for a burial with no viewing or visitation, and from $3,405 to $4,480 for a full, economical funeral.

In the Arizona city of Mesa, the sale of Lakeshore Mortuary to the publicly traded funeral home chain Service Corporation International led to price increases for a cremation from $1,565 in 2018 to $1,770 in 2021, for a burial from $2,795 to $3,680, and for an economical funeral from $4,385 to $5,090.

“We believe our pricing is competitive and reasonable in the markets in which we operate,” a Service Corporation International official said in an email.

Details of those price increases were provided by Martha Lundgren, a member of the Funeral Consumers Alliance of Arizona’s board. She said funeral home acquisitions have led to the cancellation of pricing agreements negotiated on behalf of consumers who are members of the alliance. In 2020, a cremation at Adair Dodge Chapel in Tucson cost members $395, nearly two-thirds off the $1,100 standard price. But after Foundation Partners Group acquired the funeral home, the member pricing agreement was canceled, and the price of a direct cremation rose to $1,370.

Foundation Partners Group officials said the price increases partly reflect the higher price of supplies, such as caskets, as well as increasing labor costs. But most of the increases, they said, represent a move to a more transparent pricing system that includes administrative and transportation fees that other funeral homes add on later.

“We don’t take advantage of people in there when they’re not thinking clearly,” said Kent Robertson, the company’s president and CEO. “That’s just not who we are.”

A big surge of consolidation happened in the U.S. funeral home industry in the late 1980s and early 1990s, and again around 2010, said Chris Cruger, a Phoenix-based consultant to the industry. And acquisitions have reached a feverish pace in the past two to three years. Many investors are banking on a significant uptick in demand for death care services in the coming years as 73 million baby boomers, the oldest of whom will be in their late 70s, continue to age.

“Sheer demographics are obviously in everybody’s favor here,” Cruger said. Funeral homes have attractive margins already, and combining them into chains to share administrative costs could boost profits even more.

Meanwhile, many funeral home owner-operators are reaching retirement age and have no one in the family willing to take over. A 2021 survey by the National Funeral Directors Association found that 27% of owners planned to sell their business or retire within five years.

The desire to sell, combined with the investment money pouring into the field, has driven prices for funeral homes to new heights. Before private equity turned its eye to funeral homes, they were selling for three to five times their annual revenue. “Now I’m hearing seven to nine,” said Barbara Kemmis, executive director of the Cremation Association of North America, a trade group for the cremation industry.

The value in funeral homes lies in more than their brick-and-mortar assets. Funeral home directors are often integral parts of their communities and have established significant goodwill with their neighbors. So when corporate chains acquire these homes, they rarely change the name and often keep the former owners around to smooth the transition.

Tony Kumming, president of the NewBridge Group in Tampa, Florida, helps broker funeral home sales. Many of his clients remain skeptical of the large firms and often will take less money to sell to someone they believe won’t stain their hard-earned reputations. Most former owners plan to live in the community and don’t want their friends and neighbors to be mistreated. “I’m not saying someone is going to take half of what another company is offering,” Kumming said. “But there’s two big pieces to a sale now: That’s money and the right fit.”

Five years ago, when Robert Olthof decided to sell his family’s funeral home in Elmira, New York, he contacted some of the large publicly traded funeral home chains. But as representatives from multiple companies visited him to make their offers, Olthof realized that none of the big chains had sent someone versed in the service side of the business. “They sent their accountants, and they sent their lawyers,” he recalled. “Everything was about the numbers, the numbers, the numbers. And I didn’t like that.”

Instead, Olthof sold to Greg Rollins, a former funeral director who had amassed a privately owned, 90-site chain of funeral homes throughout the Northeast. Rollins had offered less money than the big chains had, but he knew what it was like to be awoken at 2:30 a.m. and put on a suit to go help a grieving family. He knew what it was like to bury a child.

Rob Olthof stands next to a portrait of his father, Robert, in this undated photo. Olthof sold his family’s funeral home in Elmira, New York, to a private owner after finding that the big chains interested in buying him out were more focused on the finances than the service side of the business.

Rob Olthof

“I can’t put a dollar-amount value on how much it’s really worth selling to a person who is a funeral director themselves,” Olthof said. “Because moving forward, your name is still going to be on the front of that building.”

Victoria Haneman, a Creighton University School of Law professor who studies the funeral home industry, worries that new corporate ownership might be devastating for grieving families. “They are not behaving like normal, rational consumers,” she said. “They’re not bargain-shopping because death is viewed as an inappropriate time to bargain-shop.”

For most families, a funeral will be one of the largest expenses they ever incur. But they often enter the shopping process cognitively impaired by grief and unsure of what is customary or appropriate.

Only 1 in 5 consumers visit more than one funeral home to obtain a price list, according to a 2022 survey commissioned by the Consumer Federation of America. And online comparisons are virtually impossible—a study by the federation and the Funeral Consumers Alliance found that just 18% of the funeral homes they sampled listed their prices on their websites. As a result, families generally lean heavily on the expertise of a single funeral director, who has a motive to sell them the most expensive options. So consumers can be pushed into buying packages for open-casket funerals that include embalming and other services that drive up the cost and may be unnecessary.

“Is that sort of pickled, shellacked, cosmetized, preserved corpse where the future will be? I don’t know that the answer is ‘yes,’” Haneman said. “And I think there are investors who are betting that it’s not.”

Foundation Partners Group is a prime example. Backed by the private equity firm Access Holdings, the funeral home chain shifted five years ago to acquiring funeral homes with high cremation rates. Cremation rates nationally have been steadily climbing over the past two decades, with nearly 58% of families now choosing cremation over casket burials. Foundation Partners expects that rate to hit 70% by 2030.

The company has acquired more than 75 businesses in high-cremation states, including Arizona, California, Colorado, and Florida. Most of those funeral homes average a bit over 150 funerals per year.

Individual funeral homes “don’t have access to marketing budgets, they don’t have access to safety and health plans and benefits and these different things,” said Robertson, the Foundation Partners CEO. “And because we have the ability to drive marketing and do other things, we also take that 150-call firm to maybe 200 calls.”

Robertson said the funeral home industry is different from other sectors that private equity firms might consider investing in, describing it as a calling comparable to working in hospice care. Foundation Partners is fortunate their backers understand the service part of the industry, as well as the financials, he said. “Private equity firms aren’t necessarily known for having deep compassion for people. They’re more known for their financial returns,” he said. “To get both is really important.”

Foundation Partners owns Tulip Cremation, an online service that allows people to order a cremation with just a few clicks—and without having to set foot in a funeral home. Tulip currently operates in nine states where Foundation Partners has funeral homes. The company expects the service to eventually operate nationally.

Haneman said innovative approaches like Tulip’s are sorely needed in the funeral home industry, which has barely changed in 100 years. “It’s absurd to me that the average cost of a funeral is running $7,000 to $10,000,” she said. “People need less expensive options, and innovation is going to get us there.” Tulip charges less than $1,000 for a cremation; ashes are mailed back to the families.

Other online cremation services are Solace Cremation, Smart Cremation, and Lumen Cremation.

“Private equity investment has the potential to go one of two directions: It’s either going to entrench status quo and drive price, or the purpose of the investment is going to be disruption,” Haneman said. “And disruption promises the possibility of bringing more affordable processes to market.”

KHN (Kaiser Health News) is a national newsroom that produces in-depth journalism about health issues. Together with Policy Analysis and Polling, KHN is one of the three major operating programs at KFF (Kaiser Family Foundation). KFF is an endowed nonprofit organization providing information on health issues to the nation.

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Santos gets $1.4B offer for PNG LNG stake from Papua’s state oil company (OTCMKTS:STOSF)

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Santos (OTCPK:STOSF) said it received a binding conditional offer from Kumul Petroleum Holdings, Papua New Guinea’s national oil and gas company, to buy a 5% interest in the PNG LNG liquefied natural gas project for US$1.4B plus ~$300M in project finance debt.

Santos (OTCPK:STOSF) said Kumul paid $55M to be held in escrow to secure the offer, which will remain open for acceptance until December 31 and is conditional on Kumul obtaining waivers on some pre-emptive rights by other PNG LNG project partners.

With the sale of a 5% stake, Santos (OTCPK:STOSF) would own 37.5% of the project, still ahead of operator Exxon Mobil (NYSE:XOM) with 33.2%, while Kumul Petroleum would own 21.8%, with the remaining shared between Japan’s JX Holdings and Papua New Guinea’s state-owned Mineral Resources Development Co.

Santos (OTCPK:STOSF) became the largest shareholder in PNG LNG, Papua New Guinea’s largest resource project, with its takeover of Oil Search Ltd. last year.

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U.S. steel industry activity rate slides to lowest since January 2021 (NYSE:NUE)

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U.S. raw steel production fell 0.6% to 1.683M net tons in the week ended September 24 while the capability utilization rate slipped to 76.4%, its lowest rate in 20 months, according to the latest weekly report from the American Iron and Steel Institute.

Adjusted YTD raw steel production through September 24 totaled 66.418M net tons at a capability utilization 79.6%, down from the same period last year when 69.208M net tons were produced at a capability utilization of 81.0%.

Potentially relevant tickers include (NYSE:X), (NYSE:CLF), (NYSE:NUE), (STLD), (SLX)

The AISI also reported the U.S. imported 2.51M net tons of steel in August, including 2.084M net tons of finished steel, down 6.2% and 8.4% Y/Y, respectively, from July.

YTD total and finished steel imports are up 8.8% and 28.7%, respectively, compared with the same period in 2021.

Nucor (NUE) recently warned it expects Q3 earnings of $6.30-$6.40/share, well below Wall Street estimates.

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Falling home prices shouldn’t collapse the financial system, says hedge funder who made $4 billion betting on the 2008 housing crash

The U.S. housing market is experiencing one of the most rapid and dramatic shifts in its history.

The reason is pretty simple: Spiked mortgage rates are sidelining buyers across the country. 

And it’s far from over. Last week, Fed Chair Jerome Powell even went as far as to call it a “difficult correction.”

While the speed and breadth of the slowdown have some Americans worried about a repeat of the 2008 housing bust and subsequent global financial crisis, others aren’t as concerned. John Paulson, the hedge funder who famously pocketed $4 billion betting against the U.S. housing market in 2008, is among those who believe history isn’t repeating itself.

“We’re not at risk of a collapse today in the financial system like we were before,” Paulson told Bloomberg on Sunday. “Yeah, it’s true, housing may be a little frothy. So housing prices may come down or they may plateau, but not to the extent it happened [in 2008].”

A tale of two Wall Street oracles

Paulson, who started his hedge fund (which has since been converted to a family office), Paulson & Co., in 1994 and boasts a net worth of $3 billion, believes that the housing market is on stronger footing than it was at the start of the Great Financial Crisis.

“The underlying quality of the mortgages today is far superior. You don’t even have any subprime mortgages in the market,” he said. “In that period [2008], there was no down payments, no credit checks, very high leverage. And it’s just the opposite of what’s happening today. So you don’t have the degree of poor credit quality in mortgages that you did at that time.”

After the blow-up of the 2008 housing bubble and subsequent global financial crisis, senators passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in order to ensure the stability of the U.S. financial system and improve the quality of U.S. mortgages.

The act created the Consumer Financial Protection Bureau (CFPB), which is tasked with preventing predatory mortgage lending. In the years since the CFPB’s creation, the average credit rating of homebuyers has improved dramatically. Leading up to the 2008 housing bust, U.S. homebuyers’ average credit rating was 707. In the first quarter of this year, it was 776, according to data from Bankrate.

Bank of America Research analysts led by Thomas Thornton also found that the portion of buyers with so-called “superprime” FICO scores of 720 or above hit 75% this summer. During the years preceding the 2008 housing bust, just 25% of buyers boasted similarly strong credit.

The Dodd-Frank Act also established the Financial Stability Oversight Council which monitors the health of major U.S. financial firms and sets reserve requirements for banks, and the Securities and Exchange Commission (SEC) Office of Credit Ratings which verifies the credit ratings of major firms after critics argued private agencies gave misleading ratings during the financial crisis. Both of these regulatory bodies have helped to improve the resiliency of the U.S. financial system and banks during times of economic stress.

Paulson noted on Sunday that banks were highly leveraged during the financial crisis and took risks that would be seen as unacceptable in today’s markets after the Dodd-Frank act established the Volcker Rule, which prevents banks from making some specific types of risky investments.

“The problem, in that period of time, was the banks were very speculative about what they were investing in. They had a lot of risky subprime, high-yield, levered loans. And when the market started to fall, the equity quickly came under pressure,” he said, noting that the average bank now has three to four times as much equity as they did during the Great Financial Crisis of 2008, which makes them less susceptible to default.

While Paulson isn’t worried about a repeat of 2008, hedge funder Michael Burry, who also rose to fame predicting and profiting from the Great Financial Crisis, as depicted in the book and movie “The Big Short,” has warned for years that he believes the global economy is in the “greatest speculative bubble of all time in all things.”

Burry argues that central banks created a bubble in everything from stocks to real estate with loose monetary policies after the Great Financial Crisis, and pandemic-era spending meant to boost the economy only made things worse.

Now, as central bank officials around the world shift stances to fight inflation and continue raising interest rates in unison, the hedge fund chief argues asset prices will fall dramatically.

“There is risk growing in many sectors. The unfettered narrative feeding itself until the absurdity explodes, revealing the folly to all and easily starting a revolution,” Burry said in a cryptic, since-deleted Sept. 21 tweet.

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