SAIF Golden Charter

The key to success

Edinburgh-based William Purves Funeral Directors is a family firm which has been operating for five generations. Over the years it has purchased businesses around Edinburgh and in Dundee , Elgin, Inverurie and the Boarders, and it now has 21 branches. Five businesses acquired in the north East of England were recently rebranded to bear the William Purves name, with a £1 million hub created to serve their activities. Tim Purves tells SAIFInsight what it looks for in an acquisition…

“I’ve spoken to several funeral directors who have indicated to me that they are looking to exit the business. COVID is certainly mentioned, as is the CMA and FCA and, in Scotland, the Inspector of Funeral Directors. We have big things going on and I suppose all play a part and quite a number of people with smaller businesses are looking to sell. While there may be a slight pooling in the market, I’d say that people are looking to acquire other businesses too.”

Certain criteria

“If somebody had a business with 150 funerals or less and looking to exit and it fitted with us geographically and culturally, we would always look at a business.

For us, the most important thing is whether the business we buy fits in with what we’re about. We have certain criteria.

Where is it? Is it a standalone business, or is it one that would fit in with what we currently have? And is it in an area where we are or already operate, or is it out on a limb? Personally, I prefer to be able to travel there and back home in the same day, but it’s more than just the geography, obviously, it’s all about the culture of the business. Some of these things are hard to sort of define, but you get a strong feel of it as soon as you see a business.

We, as Independents, have purchased quite a few funeral homes over the years and apart from one, the sellers have been owners looking to exit the business. Some have done it over a period of time and some of them fairly quickly once we’ve taken over.

It can be quite difficult for an owner to sell their business, particularly if it’s been in the family for many years, and we’re sympathetic to that – this is their baby. We want them to be able to walk past with their head held high and not regret that they sold it to us, but feel proud that they’ve passed it on to another Independent, another family business.

We always say, ‘Look, we won’t come in and make huge sweeping changes, but there will be changes, we can’t sit here and say there won’t’. We have built our own in-house software programme which is used in each of our branches. We’ll ask people to arrange funerals from our arrangement sheets and to be dressed in our uniform and we’ll likely change the vehicles as we run a silver-grey fleet which is synonymous with us as a company.

So there are changes, but we’re sympathetic and will look after the families the funeral director has been serving. Often the business we’ve bought has a name that’s synonymous with that area, and people know it, so we’re buying the goodwill of it.

We have just done a major rebrand of our businesses in the north east of England because it was becoming complicated as there were five different brand names there and many were within two or three miles of each other, so we’d have families wondering why their loved one was being taken to an office with a different company name. It made sense for us to rebrand under one name, but we don’t have any plans to do that with any other area.

The feedback we often get is that the corporates do make quite big sweeping changes and some staff don’t like that. I’m not here to decry the corporates at all – they have a completely different model to us – but our view is to let businesses run as closely as it was prior to us taking over.

I’m more than happy for sellers to speak to someone else who works with us and have an open conversation with them, with me nowhere in the room – they’ll be the best advocates of whether we whether we do it right or not.”

It’s good to talk

“I’m always very happy to talk to anyone thinking of selling and sign an NDA. That keeps everything under the radar because an owner may be thinking of selling but doesn’t want the staff to know, so we’re very discreet on all of that. The best way to contact me is by email.

I’m 100% sure Independents have a great future. They have a real strength in that they can make decisions quite quickly as they don’t have layer upon layer of management to go through, or shareholders who are only interested in what the return is. There will always be independent companies and I don’t think it’s only the bigger Independents that will survive. It is a really important thing that we do, and it’s a good thing that we do.”

The Hickton family business was established in 1909 in the West Midlands and is now run by Ross, Greg and Jodie Hickton, who are all under 40, with the help of their dad Trevor. Despite the pandemic, the family has acquired a new business and created a brand-new branch in 2020-21, so now has seven funeral homes and a stonemasonry business. Ross Hickton explains what drives them to expand…

“About 10 years ago we were offered a local, fairly small funeral business to buy and we’ve carried on acquiring ever since.

Our ethos has always been looking at areas where it’s dominated by corporate funeral directors, or family funeral directors which sadly aren’t doing as well as they used to. They’ve all been smaller funeral businesses, never more than 100 funerals a year, but I identified that they were all in good areas, places where we felt we could grow the main business and develop the businesses we purchased.

There were two reasons really. With four family members involved, we acted to expand to ensure there was enough work and financial stability to cover salaries, retain staff and keep the business going forward. We were doing 250 to 300 funerals a year, a comfortable number, but wanted to grow because this is going to be our life in business for the next 20, 30, 40 years.

We also wanted to take on the corporate businesses. Co-op, Dignity and Funeral Partners have all bought a lot of family firms across the West Midlands and kept the family name above the door, which I don’t agree with at all because the clients might still think it’s the original family.

All but one of the businesses we’ve bought have been fairly small and under 100 funerals a year and they were all 10 or 15 years old, two things the corporates wouldn’t consider, and there’s a real opportunity there for individual Independents or a few to club together to keep them in family hands.

You’re not going to take off overnight, it will take years to build your reputation in the area, but if you’re willing to ride that out, you will see the results in the end.

When we bought our businesses, we put our name above the door, refurbished the premises, put in new mortuary facilities and really just put the Hickton brand on it.

I can honestly say every single branch has now developed and is doing really well. The main competition in all of the areas was corporate funeral directors and we took them head on. In Birmingham we actually closed down a Co-op branch trading under a family name on the same row of shops – we literally clawed the work off them and put it back into an Independent for the area.

Before COVID, we had five funeral homes and our own in-house stonemasonry business, and at the start of last year we were in the process of opening a brand new branch – the first we’ve opened as a cold start in a new area. Delays due to COVID meant we eventually opened in March 2021. We had identified an area which had only two funeral directors serving it and the surrounding villages.

Those were Co-op and Dignity, so we saw a real need for an Independent to serve that area. I did all my research into the demographics of the population and the death rate over the last 10 years, so we felt it was a good area to go for.

Good advice

I do all the negotiations and check the accounts with solicitors and accountants.

You learn what you’re looking for and what not to look for when acquiring a business, so it’s worth making sure you’ve got a good accountant as they’ll also advise you the best way to buy or sell your business, whether that’s through assets and goodwill, or selling the limited company as a whole.

Now the new branch is doing very well with funerals coming in and we have sold a lot of pre-paid funerals, which is good insight into the area. The feedback we’ve had from the local community has been fantastic, they’ve really welcomed us with open arms and said it’s nice to have a family-owned business back in the area.

We also bought a very long-established stonemasonry business in Dudley, not far from our head office, and it was a fantastic buy – the business is absolutely booming. Of course, we have a bit of a bubble at the minute post-COVID.

We have been offered businesses outside the West Midlands, but we just felt we couldn’t give them our personal attention and we didn’t know the areas either. Location is everything and for anybody who’s looking to open a new branch or buy a business, my advice is to look at the competition and don’t be afraid to take on the corporates.”

Swallowed up

“If an Independent owner was thinking of selling, they’re more likely going to get more money for the business from a corporate company. But when they get swallowed up into this big corporate giant, the personal level of care is diminished. Many corporates have good customer-facing office and funerals staff, but they’re very restrictive so the families won’t necessarily get the best service they’ve had in the past.

In the next 12 months I feel we’ll see a lot of businesses come on the market. It has been a tough time and I think, sadly, some of the smaller businesses with just one owner or director may have had enough. Funeral directors in their fifties and sixties may not be able to face getting regulation ready after COVID, which is sad, but I think the market does need a good shake up. There are a lot of new entrants to the market, some delivering a good level of service, some not, but the regulation will sort those out.

I’m happy to be contacted if anybody wants to discuss selling their business, not necessarily to me, but for any advice or help. And if anybody around the West Midlands wants to hand the reins over to somebody else, they are more the welcome to give me a call.”

As a former founder director of one of the most acquisitive funeral groups in the UK, Guy Turner bought many businesses and has since advised more than 30 funeral directors on the successful sale of their business. He explains the importance of preparing for a sale…

“It is important for those thinking of selling their funeral business to understand what is actually involved and how to go about it. Regardless of who the potential buyer might be there are a number of things to consider.

Often taking the first step is very difficult as it is not always easy to talk about selling and many people are uncomfortable doing so. The matter needs to be kept confidential and there are ways to help ensure this.

There needs to be some thought around who might be interested in buying the business and their ability to fund the purchase. Funeral directors need to consider what different potential buyers may offer in terms of valuations, how the business is run going forward and what might be expected of them after they have sold, and for how long.

There are a number of key steps in a sale process. Firstly, to allow any buyer to put forward a credible offer, they have to understand the business and its profitability. Businesses are not bought and sold based on a value per funeral and haven’t been for many years. In almost all cases that would significantly undervalue the business.

Once the key terms have been agreed all buyers will want to confirm their understanding through due diligence. The level and detail of this will vary from buyer to buyer but there are some areas that will be applicable to all buyers.

Getting comfortable with property matters such as leases will apply to all. It is not uncommon to find that leases need to be assigned, either to the buyer or into the trading company if they are still in sole trader or partnership names. It is also not unusual to find that leases are on an informal basis or have expired. For almost all buyers these will need sorting so they have the security of tenure they require.

When it comes to buying a Limited Company, often some buyers are less keen on this because of the increased risks and greater level of due diligence required, however, for a seller it is often a lot cleaner to sell the shares of the company and is likely to be beneficial from a tax perspective.

There are other factors to consider. Where there are employees and their employer will change as a result of the sale, for example when the business trades as a sole trader or a partnership, then there is a legal process required to inform the employees and address any concerns that they may have. Failure to do this properly can leave the seller liable.

The opportunity for selling a funeral business has changed over the last few years as some of the corporates are currently not acquiring and others are focusing their efforts on larger businesses unless there is a strong geographical fit. This has created a difficult situation for some who are keen to sell but are not of interest to a corporate.

For these the answer may well be to look towards other independent businesses or smaller groups. This will have its attractions to some, but without access to the funds of the larger groups and corporates it is often hard to achieve the values required from smaller Independents. That is the reality, whether people like to hear it or not.

Every business is different, as will be the options when it comes to selling. For advice or to discuss a sale in confidence, contact me.”

The challenges of selling and buying

Richard Barradell, of Goldray Funeral Consultancy Ltd, has worked with funeral directors for more than three decades.

“Back in the early 90s, when I was first involved with the sector, I became aware of just how professional the majority of funeral directors were. However, their commercial knowledge did not always match their professionalism.

That can still be the case today, and buying and selling any business involves hard work and continuous involvement with lawyers and accountants.

Things are definitely changing for the better, though. Now there’s a much-improved mix of hard-won experience and more developed commercial skills.

This has been aided by the younger generation, many of whom have successfully completed a degree or have worked in other spheres, and the establishment of SAIF’s NextGen group has made a great contribution to this beneficial change.

The process

In broad terms, there are three main components within the selling and acquisition process.

Firstly, the creation, negotiation and agreement of the Heads of Terms which detail the intended outcomes of the parties involved. At this stage the seller usually signs an exclusivity agreement, agreeing not to negotiate with any party for a set period of time.

This is followed by the due diligence process, led by the buyers who list the information they require, together with the methods by which they hope to obtain it. This tends to cause sellers the greatest concern as it is hard to anticipate the full extent and impact of the process if you have never been involved in it before. If the deal eventually fails it can often be at the end of this stage as the buyer has all the facts before them so may renegotiate, to their advantage, aspects of the Heads of Terms.

The final stage is the Sale/Share Purchase Agreement which is led by the lawyers for each party.

Market trends

The future can only be considered in general terms given the impact of the pandemic. However, the pressure on prices looks certain to continue, aided by increased regulation by the CMA. In addition, COVID-19 has accelerated the trend towards simpler funerals and direct cremation, so it is impossible to forecast what the demand for traditional funeral services will be post-pandemic.

The sector is very poor at collecting and analysing data to quantify and qualify the impact of market trends, so I, together with my colleagues in the Deceased Management Group (DMAG), am working hard to address this.

The current market

There is a current shortage of buyers so those who are active can obtain businesses comparatively economically, but there are signs of new venture capital-backed organisations coming into the market.

It is anticipated that further regulation and increased pressure on costs and prices will lead more small or less established businesses to sell, and there are early indications that this is beginning to happen. If an Independent owner wishes to purchase additional outlets there may well be opportunities within an accessible catchment area allowing an even better use of their existing overheads.