Equity Corp.’s Tough Deals Standards: Funeral Industry Consolidator Buys Often But Seeks the Best Available Performers

One of four major consolidators that have driven feverish acquisition activity in the funeral services industry, Equity Corp. International executed a significant strategic shift in 1996 without skipping a beat. Traditionally the specialist in small and middle-sized population centers, Equity Corp. extended its acquisition focus to the big cities with an intriguing twist on its basic concept for adding funeral homes and cemeteries to its network. Equity’s metropolitan concentration is on what Chairman and CEO James P. Hunter III calls businesses with “home town” characteristics. The definition covers a lot of territory. It could include, Hunter says, targets that serve specific ethnic groups or defined areas of a city or that enjoy some other element that links the business with a discrete community. Most important for Equity, it has allowed the company to cast a wider acquisition net at a time when it faces accelerating competition for desirable parlors and cemeteries from its three principal rivals Service Corp. International, Loewen Group Inc., and Stewart Enterprises Inc. While the strategy has been adjusted, Equity has not budged on its rigorous acquisition criteria which keep the company focused on what it considers the best operations. The strictures, “set in stone,” according to Hunter, require: Market leaders or businesses with “specific brand loyalty;” Solid local management with ability to deliver professional services; Sound demographic trends in the community; Compatibility with the goal of clustering businesses in population centers; and * Accretiveness to earnings from day one. Holding fast to those principles hasn’t stopped Equity from aggressive buying and deal closings. By the end of 1997, it owned about 250 funeral homes and 75 cemeteries and more were being sought on a day-in, day-out basis. But adherence to the rules enables the company to pick and choose the businesses it likes best. Hunter says the company constantly culls a data base that includes the name and location of every funeral home in the United States. It has a staff of 10 corporate development specialists who contact and check out prospective targets and link with about a half-dozen m&a intermediaries who specialize in the funeral industry. Equity and other consolidators offer sellers economies of scale in purchasing supplies, cost savings through centralization of administration, and training in modern management and marketing techniques. In return, Hunter notes, Equity seeks a commitment from the seller to retain managerial control of the business – whose name is never changed – because primary assets are roots and lone relationships that funeral homes and cemeteries enjoy with their communities. “These are heritage-driven companies, and we try to preserve that heritage and those names,” Hunter asserts. Maintaining the balance often has been a tough proposition for companies purchasing “mom-and-pop” businesses because the well-compensated former owners frequently lack incentives to continue working hard. Equity tackles this problem with intensive education and instructional programs that provide the necessary motivations for continued entrepreneurship. “We have proved that we can be successful in rekindling the entrepreneurial spirit within rational management parameters,” Hunter says.