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.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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