Federal regulators have launched an antitrust investigation into the merger of the two largest funeral services companies in the US, probing the industry as it prepares for a surge in business from a generation of baby boomers. “It’s a distress purchase, and people spend more when their thinking is clouded because someone has died.”

July 16, 2013 7:09 pm

Consumer groups push for funeral deal to be put six feet under

By April Dembosky

Federal regulators have launched an antitrust investigation into the merger of the two largest funeral services companies in the US, probing the industry as it prepares for a surge in business from a generation of baby boomers. The Federal Trade Commission will examine the market impact of the $1.4bn purchase by Service Corporation International(SCI), the largest chain of funeral homes and cemeteries in the US by sales, ofStewart Enterprises, the second-largest company in the field, several people familiar with the matter said. The FTC declined to comment.Consumer groups plan to weigh in heavily on the probe, flagging the need for greater price protection as the industry enters a period of growth, with 76m baby boomers expected to require funeral services in the next decades.

“The funeral transaction is not like any other. We’re not talking about two companies that make tennis shoes where the effect is fewer choices of sneakers that cost $70 instead of $65,” said Josh Slocum, executive director of the Funeral Consumers Alliance. “It’s a distress purchase, and people spend more when their thinking is clouded because someone has died.”

The FTC’s investigation, known as a “second request”, follows a 30-day initial review, and could take six months or more to complete. Less than 2 per cent of acquisitions received this level of regulatory scrutiny by the FTC last year, but most of those were ultimately approved.

Regulators also investigated the last two acquisitions pursued by SCI, in 2006 and 2010, and required the disposal of funeral homes and cemeteries in dozens of markets before the deals were permitted to go through. Both companies anticipated the probe when they announced the merger, but are eager for it to be completed swiftly and without regulators requiring them to make more than $60m in divestitures.

Consumer advocates said they will try to convince the FTC to block the merger or force a restructuring of the deal. They said their data showed that previous SCI acquisitions have resulted in higher consumer prices and fewer services in affected parts of the country.

“Large chains are quite adept at up-selling people, effectively forcing people to buy more,” said David Balto, a former FTC commissioner and antitrust lawyer representing the Funeral Consumers Alliance in the investigation.

The advocacy group said it regularly received consumer complaints about SCI, ranging from reports of aggressive salespeople who have lied about regulations in order to convince customers to buy more expensive burial services to claims of double-selling graves to different families.

If the deal is approved in its proposed form, SCI would own 2,000 funeral homes and cemeteries and generate $3bn a year in revenues, according to company documents. Its next closest competitor, Carriage Services, had $200m in sales last year.

SCI said its corporate backing of “mom-and-pop” funeral homes resulted in better training, facilities, and services to customers. After the merger it said it would own 15 per cent of the overall market.

But Mr Balto said he would argue to FTC commissioners that SCI would have geographic monopolies – up to 40 per cent market share – in certain metropolitan areas, in particular Washington and Los Angeles, and in Houston and Dallas, Texas.