By Thomas A. Parmalee
If you own a house, no one has to tell you that you will probably get less for it now than you would have received if you sold it six months or a year ago when interest rates were lower.
And unless your funeral home has undergone a dramatic transformation in a short period of time, the same principle holds, according to Kent Robertson, president and CEO of Foundation Partners Group, which operates 270 funeral homes and 23 cemeteries in 21 states. This year, even barring any future acquisitions, it is on track to serve about 150,000 families, he said.
“We use some debt and leverage,” he noted. “What that means for us and other folks who use borrowing for buying a house or business, is the cost of money is more. As the cost of capital goes up, you can’t stretch your dollars as far.”
It’s a simple formula, really: As the cost of capital goes up, buyers like Foundation Partners Group simply aren’t willing to spend as much. As interest rates continue to climb, “It may put pressure on multiples,” he said.
Even if a company is not using debt to fund a purchase, today’s economic challenges – including inflation – are putting pressure on the value of firms. With the cost of fuel, labor and virtually everything else going up, margins are coming down, Robertson explained. “So, even if the multiple holds, it creates less value for the seller,” he said.
Inflation has also affected consumers, he added.
“Maybe before they would buy a $400 urn – and now they are buying a $300 urn instead,” he said. “There has been a little bit of down-select on price point, but not in a major way. But if inflation stays up, it will keep putting pressure on families, and it may likely accelerate cremation mix.” Since Foundation Partners Group already has such a high cremation rate companywide, a change in mix would have very little effect, but Robertson can envision such a scenario having a larger impact on other firms.
Given all this, where does the price multiple based on earnings before interest, taxes depreciation and amortization stand these days for a funeral home owner looking to sell?
Foundation Partners Group does not have a target per se, “but it is definitely coming down,” Robertson said. “Two people sit in a room and figure out at what price the seller is willing to sell and what the buyer may be able to offer,” he said. “And if it works out, it does.”
But if the historical multiple has been 8, it is not holding anymore, he said.
“It is more of a 7.5 or even a 6,” he said.
When Foundation Partners Group considers buying a business, it relies on a scorecard, and it focuses on firms in high-cremation markets, which is one of its most distinctive attributes.
Companywide, the cremation rate at its combined locations stands at 88% — a number that would likely make any funeral home owner – even one in Washington state – raise their eyebrows.
“If you are a 40% cremation firm, we might say we are not your partner and just stop things right then,” Robertson said. If a business is a potential partner, often, Foundation Partners Group is able to work out a deal, he said.
Asked about ever expanding into Canada, Robertson said he would not rule it out.
“There are still a lot of opportunities in the lower 48 … but I think Canada is an interesting place,” he said. “At this point, if the right opportunity presented itself, we would be interested in looking at it because that is how we roll. But it has to fit into a lot of demographics and our cremation mix. There has to be a lot of favorable characteristics to induce us to do that.”
From Car Parts to Funeral Homes
Robertson, who is not a licensed funeral director, has a broad business background. Having earned a Bachelor of Science in economics from the University of Oklahoma, he hangs his hat on being from outside the industry – an attribute that lets him ask “why” where others may accept something as just the way it is, he said.
Having been at Foundation Partners Group for more than three years, joining initially as chief operating officer before taking on the additional role of president and then being promoted to CEO a little over a year ago, he said he plans to stay at the organization for the long haul.
Prior to joining Foundation Partners Group, he worked in the auto recycling business, founding Fenix Parts, which went public and then eventually went private again. “Most auto recyclers were multigenerational, family-owned businesses and technology was leaving them behind,” he said. “On the repair side, they were consolidating … and what was happening is parts were coming in from Taiwan.”
Fenix saw an opportunity to use technology to introduce recyclers back into the picture. If you visit the Fenix Parts website today, you can buy auto parts for your vehicle at a fraction of the cost you would pay elsewhere.
While on the surface, it may not seem to have a lot to do with death care, Robertson noted that it gives him a different perspective – and that is the key.
“It allows us to ask why more often than not,” he said.
You don’t have to be a licensed funeral director to understand the profession, Robertson said. But he quickly added that the company has no shortage of veteran funeral professionals.
“Within the organization, we have almost 400 licensed funeral directors and another 300 arrangers,” he said. “So, it is not as though we don’t have funeral professionals around – we do.”
But having a spectrum of perspectives and individuals with different backgrounds allows the organization to collaborate at a level rarely seen elsewhere, he said. “When people partner with us and see what we are doing and how we are doing it, they understand we just want to do what is right and that we get it,” he said. “As long as you have a heart and a purpose and mind, it all works.”
As to how he joined Foundation Partners Group, Robertson noted he’s known Thomas Kominsky, the company’s CFO, for several years. Kominsky joined the company through Access Holdings, the organization’s equity sponsor – and he’s the one who made the introduction.
While talking with the team at Access Holdings and Foundation Partners Group, Robertson said he found “a true purpose.” The fact that it was a compassion-focused group resonated with him.
“We are all working for one common goal – to serve families,” he said, noting that he’s had loved ones die and could immediately connect with the company’s mission.
“It seemed like a really fun opportunity,” he said. “I see myself here for a very long time.”
Focusing on Cremation
At the center of everything that Foundation Partners Group does is a central feature: trying to build an enduring business, Robertson said.
For that reason, it has leaned into cremation, which it believes will only become a more popular choice as time goes on.
“Our view is to build out a national infrastructure around cremation as a means of disposition,” he said. “We tend to acquire firms leaning toward cremation to begin with.”
Asked about a state or region that the company wants to avoid – or an area it wants to focus on – Robertson said the company has always left its options open. “There is not really a place we have said no or yes to,” he said. “It’s more about does it fit into our model and are we interested in it? Right now, it may not fit into it … but tomorrow it might.”
The company has more than 10 times the number of funeral homes as it does cemeteries, but that doesn’t mean Foundation Partners Group will shy away from buying a solid funeral home that comes along with a burial ground, he said.
“I think permanent memorialization is super important,” he said, noting that a large number of cremation families still opt to bury or inter the cremated remains of their loved ones. He added, however, “I also think the shift of folks wanting to be memorialized …. I don’t know how that looks over time.”
Last year, Foundation Partners Group bought three cemeteries, he noted. Overall, it completed about 20 purchases, which included 54 locations. Those firms served about 30,000 last year, he said. “It is not like we aren’t acquiring cemeteries, but generally they come along with other operations,” he said.
One purchase that stands out is the acquisition of Krause Funeral Homes & Cremation, the largest provider of funeral services by number of families served in the state of Wisconsin, which was owned by one of the most beloved funeral directors in the profession, Mark Krause.
At the time the purchase was made, Robertson hailed Krause’s thought leadership, stating, “Mark’s history of expanding funeral service offerings to anticipate how, when and where families want to be served is a perfect match for our vision for the company and the industry.” He added, “He has played a critical role in the conversation around cremation and the laws that impact the profession.
Even though it’s now been a few months since the purchase was completed, Robertson’s excitement about the purchase – and particularly about adding Krause to the Foundation Partners Group team – has not worn off.
“He is a stalwart of the industry,” Robertson said of Krause. “Aside from being a really great guy, he has had a lot of great experiences.” With some admiration, he noted that Krause even plays in a band.
Krause has also served in various capacities at national death-care associations, which is an area that Foundation Partners Group is looking to get more involved. One of the reasons is because as the national footprint of the company grows, Robertson believes that it has to be a larger participant in the profession at large.
“We want to keep Mark plugged in,” Robertson said, noting that for lack of a better way of saying it, he’ll serve as the company’s vice president of industry relations. “He knows where all the light switches are and how to advocate,” he said.
Lessons from COVID-19
Robertson’s tenure with Foundation Partners Group started near the beginning of the COVID-19 outbreak.
Since then, the company has gravitated toward more of a care center model, which has proved to have been the right move, Robertson said.
“We endeavored at the beginning of COVID to look at the way we serve markets and to consolidate activities around removals and cremation under a common rooftop,” he said.
At first, the company was concerned about what that may mean for the company.
“At most funeral homes, these jobs are a little bit of everyone’s job,” he said. “But what we found with COVID is that by consolidating logistics, we solved some of our driver problems. By having a dedicated team, we took pressure off funeral directors. And by doing cremation at a consolidated location, instead of being shorthanded, our firms had enough staff because we took some of those tasks away.”
Doing all those things also helped lower costs companywide, which paid off amid an inflationary environment that no one could have anticipated – and that even the Federal Reserve insisted was “transitory” before reversing course and calling it “entrenched.” Even now, there are debates about how high the Fed will have to raise interest rates – and for how long those rates will remain elevated.
“We thought we would be experiencing outperformance by now, but obviously we are just experiencing performance,” Robertson said, noting that the outcome would have been different had the company not been diligent about reining in costs and changing the way it does business.
“Had we not done that, we would probably be looking at raising prices dramatically,” he said.
With all the changes, there have been some adjustments the company has made along the way, including some hard decisions, such as a recent small reduction in its workforce a few weeks ago.
Robertson explained that with the company having made several dozen acquisitions over the past few years, it has had to add more support staff over that time. Ultimately, however, it found that it could consolidate some of those roles and responsibilities.
“We made a shift organizationally, and part of that shift led to a little reduction in force,” he said, noting that it was a modest number – about 25 employees. The company employs 2,000 people, he noted.
“These are never easy decisions because they impact people’s lives, but as a company, it wasn’t like we had a big layoff,” he said.
The biggest lesson Robertson has learned from the pandemic is that it reconfirmed for him that the people who work in the profession are fantastic. “We are fortunate to have a team of professionals who care about families,” he said. “It has reaffirmed that there is humanity out there and people still care about people.”
As for how the pandemic will affect consumer behaviors over the long term, Robertson isn’t sure we know just yet.
“Our expectations of service are changing, including how quickly we get things and the information we get about choices,” he said. “That will have a lasting effect on all of society.”
As to the future of Foundation Partners Group as a company, Robertson noted that its equity partner, Access Holdings, has been involved with the business since 2010. Access Holdings has no immediate plans to exit the business, he said.
“There is old Warren Buffet saying that if you build something to sell it, you will own it forever,” he said. “We will always do what is right for our investors, and most importantly the families we serve and the team that works with us. We don’t have any other plan than to do the right things to build this company.”
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