Dignity looks north with £58.3m acquisition of funeral homes

The stock market-listed firm revealed a deal to buy Beverley-based Yew Holdings from a consortium of private investors, funded through debt and a share issue.

Of the 40 funeral homes, 22 are in Yorkshire and operate under local brand names. The deal also includes Haltemprice Crematorium in Hull and East Riding Crematorium near Driffield.

Dignity is not buying 20 of Yew’s sites, or its Beverley head office, to appease competition concerns.

“It’s a high-quality business and will be a great addition to our network,” said Dignity chief executive Mike McCollum. “It’s an important moment in our history.”

Yew made underlying earnings (EBITDA) of £5.2m on £11.3m of income in the year to July 2012. It carried out 6,197 funerals, earning an improved 44.6 per cent EBITDA margin. Yew also performed 2,611 cremations in 2012, with an EBITDA margin of 56.3 per cent.

However, Yew’s funerals cost an average of £1,565 in 2012, compared with Dignity’s £2,350 charge in 2011. “The board believe that there is an opportunity to improve Yew’s services and facilities and thus bring its average income per funeral closer to Dignity’s,” said the group. It has set aside £2.5m to upgrade the new sites over the next two years.

Mr McCollum insisted price hikes are not a foregone conclusion. “I’m not saying we will make any changes (to prices),” he said. “Our investment case requires the business to continue to operate as it has done in the past.”

Mr McCollum said Yew’s investors had “reached a fork in the road” and picked a sale as the “most attractive” option.

About 220 staff will transfer to Dignity. “There are no plans for any redundancies,” he added. “If anything, I would say joining Dignity as a larger organisation, hopefully staff will view that as an opportunity.

“There will be training opportunities for the staff that come over.”

Dignity had 650 sites before the deal. Buying Yew will increase its market share to 12.5 per cent of a “very fragmented” market, dominated by private businesses.

Dignity added the two privately-held crematoria are “attractive, established assets” – rare in a market 67 per cent dominated by local authority-owned crematoria.

Analysts at N+1 Singer said it is a “sensible corporate move” and said Dignity has an opportunity to increase Yew’s earnings.

“We have met Yew management on a number of occasions and always sensed they were keen for a corporate event to help realise some value, with IPO (initial public offering) mooted as an option,” they said.

“We would anticipate notable synergies to materialise given Dignity over time will reduce the gap between what Yew charges for a funeral of about £1,600 vs Dignity at £2,500.”