Service Corp International

Size per se is not what creates a successful roll-up; what matters is the right kind of size. For Service Corporation, multiple locations in individual cities have been more important than many branches spread over many cities, because the cost savings (such as sharing vehicles) can be realized only if the branches are near one another. Roll-up strategies are hard to disguise, so they invite copycats. As others tried to imitate Service Corporation’s strategy, prices for some funeral homes were eventually bid up to levels that made additional acquisitions uneconomic.
Roll-up strategies consolidate highly fragmented markets where the current competitors are too small to achieve scale economies. Beginning in the 1960s, Service Corporation International, for instance, grew from a single funeral home in Houston to more than 1,400 funeral homes and cemeteries in 2008. Similarly, Clear Channel Communications rolled up the US market for radio stations, eventually owning more than 900.
This strategy works when businesses as a group can realize substantial cost savings or achieve higher revenues than individual businesses can. Service Corporation’s funeral homes in a given city can share vehicles, purchasing, and back-office operations, for example. They can also coordinate advertising across a city to reduce costs and raise revenues.
This acquisition is the culmination of a 30-year acquisition program which has transformed SCI from being a single, Houston-based funeral home to an international company owning 2,680 funeral homes and 320 cemeteries around the world. Through acquisitions, SCI has grown, and expects to grow, in earnings per share, sales, and operations at 20% per year even though underlying demand--the death rate--is growing at approximately 1% per year. SCI's Chief Financial Officer, George Champagne, is worried that investors do not understand SCI's growth strategy and its ability to create value. In addition, he is concerned about how to finance future