SINGAPORE (Dec 14): As long as people are mortal, the funeral and death care service industry would thrive. Although the funeral and death care service industry is generally not a growth industry; however, it is particularly stable and sustainable.
Two years ago, Nirvana Asia, the largest integrated death care service provider in Asia, was privatised. The US$1.1 billion acquisition of Nirvana Asia Ltd by CVC Capital Partners, a leading global private-equity firm, was done at a 22.4% premium above the prevailing price. At that time, Nirvana had a third of the market share in Singapore and Malaysia. Its services included the entire death care service value chain, and the company was a pioneer in pre-need death care services in Asia.
Some of its financial highlights included a strong cash position with zero gearing (interest-bearing debt), an adjusted five-year earnings before interest, taxes, depreciation and amortisation (Ebitda) and net profit margin compound annual growth rate (CAGR) of over 30%, and a reduction of costs and expenses as a percentage of revenue by 10% within five years, indicating Nirvana’s economies of scale.
The demand for death care services is usually very inelastic, which translates into higher profit margins and economic moats. The margins are further enhanced in areas where land is scarce, such as in Singapore, which tilts the pricing power in favour of death care service providers. The industry also requires low working capital and capital expenditure to operate.
Furthermore, government regulation and strong branding serve as strong barriers to entry.
Hence, the death care service industry is innately sustainable and profitable.
But growth in the industry primarily depends on the birth and mortality rate. The rise in the population of ageing baby boomers enhances the prospects of the death care service industry in the short and medium terms.
Find out more in this week’s issue of The Edge Singapore (Issue 861, week of Dec 17), on sale now at newsstands.
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