Toronto-based Park Lawn announced its second acquisition of the year, picking up a half-interest in six funeral homes and a cremation facility in Manitoba and Saskatchewan for $2.6-million. That followed last February‘s purchase of a half-interest in eight Tubman funeral homes in eastern Ontario and Quebec.Getty Images/iStockphoto
Andrew Clark is fighting the ghosts of funeral home consolidators past.
When the chief executive officer of Park Lawn Corp. meets owner-operators of funeral homes, cemeteries and crematoria to inquire about buying their businesses, many have dollar signs in their eyes. Where Loewen Group Inc. or Service Corporation were willing to pay 12 times operating earnings during the consolidation frenzy in the late 1990s – only to choke on their debt-fueled acquisition binges – he offers four to six. One prospective seller took one look at his offer, closed the book, and walked off, Mr. Clark said.
But the 39-year-old feels he has a compelling story as he embarks on the latest attempt to consolidate the death business. This week, Toronto-based Park Lawn announced its second acquisition of the year, picking up a half-interest in six funeral homes and a cremation facility in Manitoba and Saskatchewan for $2.6-million. That followed last February's purchase of a half-interest in eight Tubman funeral homes in eastern Ontario and Quebec.
Park Lawn booked $11.2-million in revenue in the first half of the year and has a stake in 12 funeral homes, six cemeteries and six crematoria, but it has big ambitions and enthusiastic backers.
The company has raised $17-million in two stock offerings on the TSX Venture Exchange in the past year and Mr. Clark said he's working on six potential acquisitions, including one that could be "transformative," because the target's $10-million annual operating profit is twice the level of Park Lawn's. "The more deals we do, the more sellers there are," he said Thursday. "I had two calls today from interested parties."
Mr. Clark believes that he can quintuple Park Lawn's operating earnings within five years to $25-million, and expects the stock to graduate to the Toronto Stock Exchange within 24 months. The 46-cent annual dividend, a legacy from its days as an income trust, is sacrosanct. "There's absolutely no way we're abandoning the dividend," Mr. Clark says. "That's an important part of our capital structure, and it imposes a discipline on us."
Mr. Clark was set to pursue a career as a lawyer after being accepted by two law schools, but heeded the advice of his father, David Clark, a business lawyer in Toronto, who told him he'd never make real money staying on the legal path.
Instead, he earned a masters degree in management, economics and politics at Scotland's University of St. Andrews in 2000. Noting the number of international visitors to the area's renowned golf course, he started a golf vacation business, which he later sold to travel giant Merit Travel Group.
Looking for another opportunity, Mr. Clark was drawn to the death-care industry's growth prospects: As more baby boomers enter their retirement years, the death rate is expected to rise from seven per 1,000 people to 9.7 by 2045. Despite past consolidation, the industry is fragmented and dominated by owner-operators facing uncertain succession plans.
His father introduced Mr. Clark in late 2010 to a colleague, Park Lawn's CEO, Frank Mills. Park Lawn, with six cemeteries in Toronto at the time, "was a sleepy little company that traded by appointment," said Mr. Clark. He convinced Mr. Mills and other investors to sell him 15 per cent of the company for $3.9-million – representing all of his savings other than his house – and to make him chief operating officer until he replaced Mr. Mills last year.
Mr. Clark's consolidation strategy involves many familiar tactics, including promises of achieving economies of scale. There is immediate value creation with every deal as Park Lawn pays up to six times earnings, while investors value Park Lawn at more than 10 times. Mr. Clark prefers buying operations with crematoriums, as that business is growing steadily. He's looking in central and eastern Canada, but would consider the right opportunity in the United States.
Park Lawn aims to take a 50-per-cent stake in acquired companies, with an option on the rest. "There are a lot of vendors interested in phasing out, they're just not ready to do it all at once," said Mr. Clark. "We did a lot of canvassing and this approach has been well received."
Julie Tubman, who sold a 50-per-cent interest in her third-generation funeral home operation to Park Lawn this year and plans to stay on for another decade, says she's pleased with her new partners.
"It's been a wonderful, positive experience," she said, describing Park Lawn's executive team as forward thinking and collaborative. "They share the same values as I do."
Selling to a larger corporation, "You'd just be a cog in the wheel." Asked what will happen if Park Lawn becomes a huge company, Ms. Tubman replied: "Well …" before tailing off. "I don't know," she said a few moments later. "Their culture and vision is so ingrained, I can't see that changing."
Sean Silcoff