Former Keystone North America executives Steve Schaffer and Jim Price founded the funeral home consolidator, which is backed by Sterling Partners, a private equity firm. “We have plenty of dry powder,” says Schaffer, Foundation Partners Group’s president chief executive officer. “If a large deal came to the table, we might have the ability to upsize our credit facility.”
Sterling Partners, the company’s backer, is a new investor in the funeral home space. According to the equity firm’s website, “With nearly $4 billion of capital under management, our investment strategy is to invest from $5 million to more than $150 million of equity in each company with which we partner.”
The equity firm was founded 25 years ago, and Schaffer says its owners have researched the funeral and cemetery markets in detail.
The commitment that Sterling Partners has put forth to Foundation Partners Group is about twice the amount that Schaffer and Price began with when they founded Keystone North America with Bob Horn, who was just named a board member of Foundation Partners Group. More board members will be
added, Schaffer says. “We’ll likely bring in some people from outside the industry – potentially someone from the hospitality side that will help expand our view of what we can accomplish in the funeral industry,” he says.
Making an Immediate Impact
Foundation Partners Group already has made an impact in the profession, having bought 23 funeral homes and five cemeteries that were put up for sale as a result of a merger between Service Corporation International and Keystone. SCI was required to sell all but one of those funeral homes by the Federal Trade Commission; it sold another firm that was not strategic to its business. The 22 funeral homes and five cemeteries it needed to sell had combined annual revenues of $19 million.
Schaffer says that Foundation Partners Group will now turn its attention to identify other acquisition targets. “Funeral homes are quite comfortable for us, and that was part of our focus on the Keystone side, but we are starting with a significant cemetery presence,” he says. “Size is a little bit more important on the cemetery side of things, and if we look at cemeteries, they would definitely be combination properties, and most of the cemeteries would be part of funeral home groups or larger combinations.”
Price, the company’s chief operating officer and executive vice president, adds, “The right freestanding cemetery that has the opportunity to build a funeral home on it in the right market might make sense.”
Culture is also very important when it comes to deciding what firms to buy, Schaffer says. “I would say for us it’s the quality of the firm, and we look hard to make sure they are a cultural fit for us,” he says. “We don’t want to look at anything that becomes available; there are lots of good firms that are reasonably priced.”
Schaffer adds, “I would say that (potential acquisitions) would be very similar to the size and scope of the firms we were looking at while we were with Keystone. Generally, for a firm to be a good fit for a corporate entity, it would need to be in the range of $800,000 to $1 million in revenues consistently, which typically equates to 125 calls or more. As with all rules, there are always exceptions to that, but that is a rough guideline.”
Foundation Partners Group will look at expanding in all areas but will focus on growing its footprint where it already owns properties, Price adds. “The most logical primary focus is to build around the locations we already have, those just acquired from SCI,” he says. “As a result, the South and Southeast are natural geographic areas of focus; however, we’ll look at each opportunity to add to our growing family individually based on the outlook for that location and that market.”
Schaffer says Foundation Partners Group can grow quickly. He adds, however, “Growth, simply for
the sake of growth, tends to create more problems than it solves over time. We are in this to build for the
long term and will grow at a pace that allows for that.” He notes that down the road, Foundation Partners
Group would be open to the idea of going public, but he adds, “(We) are actually quite looking forward
to operating as a private entity for the near future.”
Schaffer and Price agree there was a fair amount of disappointment when SCI bought Keystone. “When you build something over 14 years, you can’t help but have some disappointment, but we under- stand the board’s responsibility to shareholders, and SCI’s price was a fair price,” Schaffer says. “But emotionally and personally, it was a bit disappointing.”
Foundation Partners Group has so far retained all the employees at the properties it acquired as part of its inaugural transaction. There are about 180 employees across all the firms and an additional 50 to 75 part-timers, Price says.
“The morale is quite good at the locations that are joining us,” Schaffer says. “Many of the firms were with Keystone before so they are familiar with our style, but even the SCI firms we acquired seem to be pleased.”
Part of that may be due to the fact that no one has suffered much from a compensation standpoint. “Luckily, the health and benefit plans were pretty much commensurate between SCI and Keystone,” Schaffer says.
There are also about 15 full-time workers at Foundation Partners Group’s corporate offices in Orlando, Fla. “These people believe in the service culture we established at Keystone,” Price says. “We are pleased and quite open to adding talented people who can assist us in building the best funeral home and cemetery operating company.”
Many of the people at the company’s corporate offices were previously with Keystone, but Price notes that Paul Haarer, vice president of corporate development, is a new addition. “We connected with Paul when we acquired the Meridian Group in 2007 and were very impressed with his experience in opera- tions in addition to his proven capability to identify and close deals,” Price says. Christopher D. Thomley, who was formerly corporate controller and chief accounting officer at Keystone, rounds out the executive team as chief financial officer.
Focusing on Operations
Foundation Partners Group recognizes that it operates in a relationship-based business “and the impor- tance of those relationships cannot be underestimated,” Price says. While there will be small changes compared with how Keystone operated, there will be no significant departures, he says.
The cremation rate at the firms that Foundation Partners Group acquired is generally consistent with the national average, which according to preliminary 2009 figures from the Cremation Association of North America stands at 36.86 percent. “Clearly, part of the answer for cremation is to continue to encourage families to engage in ceremony or commemoration services along with the cremation disposition,” Price says. “The selection of cremation as an option should not preclude the participation in an event we facilitate.”
Asked about alkaline hydrolysis, a new form of cremation that has a minimal impact on the environment, Schaffer says that he’s keeping an eye on it. “If it proves to be economically viable, we would bring forth the capital needed to meet customer demand,” he says. “But it’s a little unproven if a customer would pay for that service.”
Price notes that he’s a big fan of Anderson-McQueen, whose business is located near Foundation Partners Group’s corporate offices. The McQueens expect to be the first firm in the United States to offer alkaline hydrolysis to consumers. “We do look forward to watching them closely,” Price says.
One of the more underutilized opportunities in funeral service is making the most out of technology, Schaffer says. “This has affected so many other businesses, and its application in capturing, preserving and sharing the memories of life is a natural fit,” he says. “The key is to figure out how to make it pay. We see a lot of value there and see it as an opportunity.” Price agrees and adds that he also sees opportu-nities on “the green side.”
When it comes to branding, Foundation Partners will be maintaining the name and heritage of the firms it acquires, Price says. “(We) see no reason to dilute the value of that trade name by emphasizing some other corporate moniker,” he says.
Price notes, however, that when he was with Keystone the company co-branded the “Key Memories” name to embody its service model. He says Foundation Partners Group will do something similar: “Going forward, we have selected the name ‘Special Memories of Life’ for our service model,” he says. “We always saw that as an amplification or addition to the local trade name which will continue to receive primary focus.” The initiative should be in place within the next six months, he adds.
Looking Forward to a Bright Future
For those funeral home owners who are looking for an exit strategy, Schaffer and Price hope that their company will be thought of as a credible alternative to the likes of SCI, Stewart Enterprises, Carriage Services and regional consolidators. “So far, we’ve had really good success in getting the word out,” Schaffer says. “We are getting our fair look at opportunities, and we have a pretty good start given the short life of our company.”
Schaffer argues that Foundation Partners Group will be one of the best options for owners looking to transition their firms. He hopes that the committed capital his firm has ready, coupled with the feel of a smaller, entrepreneurial organization, will be enough to win over owners who want to sell. “We just want to continue to get that message out and let our success continue to enhance that story,” he says. “We are committed to carrying forward all the good cultural aspects of Keystone in this new venture while improving on some of the operational ideas that began there.”
These are tough economic times for everyone, but the funeral and cemetery space holds great opportu- nities, Schaffer says. “We are excited about the opportunity to start fresh with a new company and to have a nice, core base of operations with good, experienced people,” he says. “We feel like we have some really good ideas and things that we can implement pretty quickly.”
Thomas A. Parmalee, Executive Editor