Johnson Consulting – Jake Johnson
(A sit down “Q&A” with Jake Johnson, President of Johnson Consulting Group and John Yopp, Editor/Publisher of Southern Funeral Director Magazine)

1) There seems to be a division between the publicly traded companies and regional and local acquirers. Can you expound on the strategy and target markets for the publicly traded companies vs. middle range private equity funded companies and the small regional and local buyers?

Actually pretty clear when you think about it. The publicly traded companies are mostly looking for high profile firms in large metropolitan areas or firms that fit into their current profiles. The regional and local firms that are buying are more focused on firms in their general area of influence although they will broaden their scope for a prize firm.

2) Since the late 1990’s (when Loewen declared bankruptcy and the “Death Stock’s” values plummeted), there seems to have been a major slowdown in individual/single acquisitions. During these past 15 years many potential sellers are in their late 60’s and early 70’s. Do you see an upward trend in sellers over the next 3-5 years?

We see the upward trend now. Prices are not what they were in the 90’s but that, in my opinion, will never happen again. There was too much damage when that was being done. That being said, there is a lot of activity right now and with the general climate of increased cremation and lower buying habits in general, funeral directors are not seeing a bright future. Combine that with the ages of current owners and there will be increased activity for sure.

3) What multiples of “revenue” and/or “cash flow” do you see for corporate buyers vs. small or single acquirers?

We do not like to go there as there are too many intangibles that affect the multiples being paid. Rural vs. urban. New funeral home vs. old. Good or poor demographics. Calls increasing or decreasing. Mix issues. Etc. etc. Too dangerous to quote a multiple number although there are those that try. Big mistake. Very individual.

4) Provident Financing used to be a favorite lending source back in the 1990’s for funding of funeral homes and cemeteries. What are some of the sources available for today’s funding. How have Live Oak Bank, Midwest Business Capital and some of the other SBA lenders affected buying and selling in today’s market?

The bankers today are receptive but basically most are SBA type loans. Cash flow lending as seen in the Provident days is basically a thing of the past. We basically do a Money Tree type lending profile at JCG whereby we go to several banks that we have used in the past and try to find the right fit for the owners. It has been very effective.

5) What are the advantages and disadvantages to seller financing in the industry? Do you recommend it to any of your clients?

Seller financing can be effective but most sellers really do not want to do it as they have nightmares about getting their firm back in a sale gone wrong. What I have seen mostly is some seller financing on top of bank financing to get to the number that the sellers want. In these cases it would be subordinated debt.

6) How important is a funeral home’s book of preneed accounts when valuing a business. Is it more of a liability or asset?

It can go both ways. It is generally considered an asset if there is a good book of future business that is well funded. It is a vital part of their current business but more importantly a precursor to the future. Conversely, a poorly funded preneed book of business that is improperly managed can be a nightmare.

7) For owners that have a funeral home and cemetery combination, how much value is placed on the cemetery, especially in today’s rising cremation rate?

First of all the funeral home/cemetery combination is the prized asset that most buyers are looking for. In most cases it will bring a very good multiple. About the only time you do not see this happen is when the cemetery is almost out of land or the combined operation is rather small. The price is not placed on the cemetery or funeral home individually but more so on the combined operation. Yes, cremation will affect the bottom line numbers but there are a lot of places in a cemetery for memorialization.