Coming Home Funeral Services

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The company occupies about 12% of the market share in a fragmented but stable and highly predictable funeral services industry, in which the company growth primarily depends on the demographic situation. There are two growth opportunities within the industry: companies can either expand through acquisitions and takeovers of small firms, as the fragmented industry provides good conditions for that, or it has an alternative to increase revenues by rising prices. Such an option seems to be quite realistic, as in this industry customers tend to be price insensitive. Instead the reputation and trustworthiness of the service provider are far more important. And now I’m going to talk about the internal situation within the company. Coming Home FS has three business units: 516 funeral locations, 21 crematoria, 4 cemeteries. The management team has a proven track record of operating efficiency. However they are willing to retain some ownership, which may complicate the deal. Considering the company’s growth it can be noticed that both revenues and EBITDA have been historically flat. But providing 2.7% increase in revenues and 10% in EBITDA in 2005 it can be assumed that management has increased prices for services, already using one of the growth opportunities. That is why, management’s future growth forecasts were found unreasonably high and 1.5% growth rate was used for the second valuation. Still the valuation showed that the company represents a good deal with its present value exceeding the purchase price. Using platform roll-up strategy Empire can buy Coming Home Funeral Services and consolidate the industry around it. Exit from the deal through IPO seems to be the most appropriate option, because the company is the local largest operator and it may appear difficult for it to find a firm ready to acquire it. Due to the company’s predictable cash flow, the deal is easy to finance/., however, there is a concern that fees and debt can demotivate the team. Revenues...
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