Carriage Services, Inc.
Carriage Services, Inc.
Sales: $168.5 million (1999)
Stock Exchanges: New York
Ticker Symbol: CSV
NAIC: 81221 Funeral Homes; 81222 Cemeteries and Crematories
Carriages Services, Inc. is the fastest-growing publicly traded funeral and cemetery service company in the United States. Since its inception, Carriage Services has grown at a rapid rate by acquiring local funeral homes and cemeteries. By 2000, in fact, the company had become the fourth largest player in the consolidating “death care market,” owning and operating more than 180 funeral homes and 40 cemeteries in 30 states. The company provides an array of services to the deceased and their families: removing and preparing remains; selling caskets and urns; hosting memorials, visitations, and ceremonies; providing transportation services; performing burials; and maintaining cemetery grounds.
Entrepreneurial Beginnings: 1991
Melvyn Payne and Mark Duffey jointly founded Carriage Services, Inc. in 1991. Although neither had experience in the death care industry, they saw lucrative opportunities to be gained by buying and operating funeral homes and cemeteries. Payne had worked previously as a management consultant for J. Howard Marshall II (the Houston oil tycoon who became famous for marrying model Anna Nicole Smith). Payne had acquired a solid reputation for successfully turning around trou-bled companies, but he and Duffey were ready to set out on their own. “We wanted to be our own boss,” Payne told the Houston Chronicle. Their first entrepreneurial attempts were less than triumphant, however, as their oil-field boat supply business and rent-to-own companies quickly collapsed. The third time proved the charm, though, when they launched Carriage Services in 1991. Payne would serve as the company’s chief executive officer, with Duffey as its chairman and president.
Carriage Services entered the death care market during a period of massive consolidation in the field. This trend actually had begun in the early 1960s, when Robert Waltrip (who had inherited a funeral home from his father in the 1950s) began to apply the principles of service chains such as Holiday Inn to funeral homes. Waltrip founded Service Corporation International in 1962 and began to acquire “mom and pop” funeral homes across the country. Two years after he took his company public in 1969, Waltrip purchased Kinney Services, then the largest funeral home business in the United States. Service Corporation International grew at a phenomenal rate thereafter. As other companies took note of Waltrip’s stunning success, they followed his business model. By the time Payne and Duffey founded Carriage Services, several large companies were gaining an ever-increasing share of the death care business through takeovers of smaller operations.
In an ironic twist, Carriage Services received much of its initial financing from a unit of Service Corporation, Provident Services, which extended Carriage Services more than $30 million in loan commitments. Carriage Services took the funds and began to purchase local funeral homes and cemeteries. Sales increased from $1.8 million to $11.3 million between 1992 and 1993, as Payne and Duffey’s enterprise built a network of funeral homes.
Dynamic Growth in the Middle to Late 1990s
By 1996, Carriage Services had grown to include 60 funeral homes in 13 states. Its revenues had increased steadily as well—from $18.4 million in 1994 to $24.2 million in 1995. But the company was still a minor player in the industry, paling in comparison with titans like Service Corporation, which owned 2,700 funeral homes, generated $1.8 billion in annual revenue, and had international holdings in Australia, Britain, and France. Carriage Services hoped to compete at this level, but recognized that it would need to expand further to be able to do so. In an effort to fund further acquisitions, Payne and Duffey took their company public in August of 1996, selling 3.4 million shares of Carriage Service stock in an initial public offering (IPO). The company needed the extra capital because “competition in the acquisition market [was] intense, and prices paid for funeral homes and cemeteries [had] increased substantially in recent years,” Carriage Services noted in its investor prospectus. Using the money generated by the IPO, Carriage Services planned to grow aggressively, aiming to spend more than $100 million on acquisitions in 1997 alone.
Carriage Services’ faith in the death care market was well founded. As Investor’s Business Daily explained, “the funeral industry [was] inherently more stable than other industries.” For obvious reasons, death is a recession-proof business, but demographic trends indicated that it was also one on the verge of an unprecedented boom. Approximately 2.3 million Americans died every year during the latter part of the 20th century, but as the gigantic baby boom generation grew old, the death care industry stood to make a killing. Analysts predicted that annual deaths would increase 85 percent between 1992 and 2040.
Moreover, most industry insiders predicted that the funeral business’s consolidation was far from complete and that there was still plenty of room for upstarts such as Carriage Services to expand. As of August 1996, the four largest companies—Service Corporation International, The Loewen Group, Stewart Enterprises, and Equity Corporation—controlled only a combined eight percent of the market. An executive for The Loewen Group declared to Investor’s Business Daily that “the market could get to 40 percent to 50 percent consolidated,” but even that figure indicated that there would still be room for smaller players. Indeed, despite the best efforts of these giants, funeral services remained “a fragmented industry dominated by independent operators, “Susan Little, an analyst with Raymond James & Associates Inc., told the Mergers & Acquisitions Report.
The nature of the industry, however, made even small efforts at consolidation difficult. In the years prior to Carriage Services’ public stock offering, the lowest-hanging fruit—regional funeral home chains—had, in large part, been plucked. But more than 20,000 small, family-owned funeral homes and cemeteries remained independent, and many were resistant to the overtures of the industry leaders (who often sought to make wholesale personnel and policy changes in their new acquisitions). Carriage Services believed that it was uniquely positioned to approach this market and to bring the highest quality local death care providers into its fold. Part of Carriage Services’ appeal was financial. The company provided often cash-strapped businesses with management and cooperative purchasing resources. Under Carriage Services’ umbrella, individual funeral homes could purchase products at lower rates than they could obtain on their own, and they were able to pool resources with other Carriage Services-owned homes in their area. For example, five funeral homes all acquired by Carriage Services in one geographic area could share a fleet of cars. Carriage Services also offered businesses an incentive-based compensation system and the broadest stock-ownership plan in the industry.
Even more important, though, was the security that Carriage Services could offer local funeral homes. As Melvyn Payne explained to the Wall Street Transcript, Carriage Services strove to retain a “corporate family environment.” According to the Mergers & Acquisitions Report, most funeral homes had been family-owned for two or three generations. At the end of the 20th century, these owners were facing a crisis of “succession and planning,” as their intended heirs often wanted to go into other businesses. Although these funeral homes wanted the benefits offered by a consolidator, they also were concerned about maintaining the reputation and continuity of their business. But to be able to offer security to these local operators, Carriage Services had to ensure that it was protected from being taken over itself. To this end, Carriage Services had created two classes of stock—A and B—during its IPO. Class A shares were sold on the open market, while Class B shares (which carried ten times the voting power of Class A ones) remained mostly in the hands of company officers and directors. By ensuring its long-term integrity in this fashion, Carriage Services was able to present itself as a stable force to skittish local operators. Funeral homes “are joining us for our style, our entrepreneurial culture,” Payne told the Houston Chronicle. “And they don’t want to do that if three months from now we’d want to sell our company to anybody.” Moreover, when Carriage Services bought a local funeral home, it did not replace staff or implement new policies.
Carriage Services’ strategy was successful. In 1997, the company spent a total of $118 million on acquisitions, purchasing 21 funeral homes and four cemeteries between January and June alone. Early that year, Carriage Services made an important deal when it bought CNM, a California corporation that owned and operated ten Wilson & Kratzer funeral homes in Alameda and Contra Costa Counties in northern California. With this transaction, Carriage Services became the fifth largest publicly traded funeral services company. In July, Carriage Services merged with Forest Lawn/Evergreen Management Corporation of Panama City, Florida, and gained several funeral homes and cemeteries in Florida and Alabama. By the close of 1997, Carriage Services had achieved sales of $77.4 million, and it reported the first net profit in its history—$4.3 million. These results were particularly impressive given that 1997 was a bad year for the death industry as a whole. Analysts attributed this fact in large part to the weather. More people die during the winter than any other time of the year, and the winter of 1997 was unusually mild.
We are committed to being the most professional, ethical, and highest-quality funeral and cemetery service organization in our industry.
Carriage Services maintained its rapid growth rate in 1998, purchasing a total of 48 funeral homes and seven cemeteries. The company did begin to focus on the profitability of its acquisitions, however, rather than simply on the number of new businesses it bought. In the process, Carriage Services became the fourth largest purveyor of death care services. Carriage Services also acted to ensure the continued quality of its operations in 1998 when it acquired Sessions Group, Inc., a company specializing in leadership development for employees and management in the death care industry. By incorporating Sessions into its family of businesses, Carriage Services was able to host ongoing training programs and implement service improvements. Similarly, Carriage Services launched the Carriage Family Survey in 1998, a “report card” to evaluate customer satisfaction levels. With operations in 30 states, 1998 revenues exceeding $116 million, and the year’s profits topping $9.5 million, Carriage Services truly had become a national leader.
Carriage Services’ positive results in 1998 were aided by outside factors as well. The Midwest and New England suffered a particularly harsh winter, which increased the number of deaths in the United States that year. Moreover, as analyst Steven Saltzman commented in the January 21, 1998 issue of the Houston Chronicle, the prominent coverage given to Princess Diana’s funeral late in 1997 “showed how much people get out of the experience of watching or attending a funeral.” Diana-mania survived the princess, as many people were inspired to have “a more lavish send-off instead of a minimal service, as most people expect they want.” Carriage Services also received a boost from the troubles of a rival. The Loewen Group continued to suffer under the fallout from a 1995 lawsuit in which a Mississippi jury imposed a $500 million dollar damage award against the company because of its business practices. Loewen eventually negotiated an $85 million settlement, an amount that represented a full year’s earnings. Because of this revenue hit, the company was unable to keep pace in 1997 and 1998 with Carriage Services.
Gains, Struggles, and Challenges: 1999 and Beyond
The death care industry continued to undergo major changes in 1999 when Service Corporation acquired rival consolidator Equity Corporation, whose 1997 sales reached $135.1 million. Together the two companies boasted 3,600 funeral homes, 500 cemeteries, and 175 crematoria worldwide. In order to complete the merger, though, the Federal Trade Commission required Service Corporation to divest assets in 14 markets. The company complied, and it sold seven funeral homes and 12 cemeteries to Carriage Services. With this acquisition, Carriage Services gained a presence in Oregon and added a fourth cemetery to its Texas holdings.
Although Carriage Services had reaped gains from the merger of Service Corporation and Equity, it also suffered from some of its consequences. Service Corporation’s buying spree had left that company overextended. Some of its most recent holdings underperformed, and the company staggered under a weight of debt and the burden of integrating its far-flung operations. In January of 2000, Service Corporation instituted cost-cutting plans, as it sought to reduce its workforce and shed some funeral homes and cemeteries. Unfortunately for the rest of the death care industry, Service Corporation’s troubles undermined the entire sector. Investors avoided the industry, and the stock prices of the major consolidators tumbled. Without access to capital markets, Carriage Services had limited opportunities to make additional purchases. “I hope Service Corporation can get their ship righted so the equity markets will open to all of us,” Payne told the Houston Chronicle on January 14, 2000.
Despite these difficulties, Carriage Services performed well in 1999. Its sales rose to $168.5 million, with a net income of $10.7 million. The aging—and subsequent expiration—of the baby boom generation presented Carriage Services with future growth potential. But it also presented challenges. The company—like its competitors—would have to negotiate what Harper’s Magazine termed the “under-ritualization” of the baby boomers. In the future, companies such as Carriage Services would be dealing with a population that was not only living longer, but that had been weaned on the industry exposes of muckraking authors such as Jessica Mitford and tended to express a preference (at least in surveys) for spending less on funerals. Already the percentage of Americans who chose to be cremated—by far the cheapest (and thus least profitable to funeral homes) way to dispose of human remains—had increased from four percent to 21 percent between 1963 and 1997. However, Carriage Services was resourceful. Taking an “if you can’t beat them, join them” attitude, the company moved aggressively to cater to those who chose cremation, adding expensive urns and memorial markers to its product lines. The company also announced that acquisitions would remain a centerpiece of its future plans.
Service Corporation International; Stewart Enterprises, Inc.; The Loewen Group Inc.
- Melvyn Payne founds Carriage Services Inc. with Mark Duffey.
- Carriage Services becomes a publicly traded company.
- Carriage Services acquires Forest Lawn/Evergreen Management Corporation.
Boisseau, Charles, “Leader in Profit Growth Emerges from Coffin Corner,” Houston Chronicle, May 17, 1998.
“CEO Interviews: Melvyn Pain, Chairman and CEO Discusses the Outlook for Carriage Services Inc.,” Wall Street Transcript, July 15, 1997.
“Consolidation Continues in ‘Death Care’ Industry,” Mergers & Acquisitions Report, August 5, 1996.
“Death Watch,” Houston Chronicle, January 21, 1998.
Gessel, Chris, “Investor’s Corner Growth, Consolidation Fuels Funeral Stocks,” Investor’s Business Daily, June 24, 1996.
Moreno, Jenalia, “SCI’s Cost-Cutting Includes Local Jobs,” Houston Chronicle, January 14, 2000.
Newman, Judith, “At Your Disposal: The Funeral Industry Prepares for Boom Times,” Harper’s Magazine, November 1, 1997.
Springer, John, “2 Family-Owned Firms in Bristol Merge with a National Company,” Hartford Courant, July 4, 1996.