Funeral group Dignity expands with £58m acquisition

DIGNITY, the UK’s only publically listed funerals group, has expanded its business with the acquisition a Yorkshire-based group in a deal worth more than £58m.

The acquisition, to be completed on a debt-free cash basis, comprises 40 funeral locations and two crematoria and strengthens the West Midlands-based group’s presence in the north of England.

To part finance the move, the Dignity board has announced a new share placing, which aims to raise around  £24.2m before expenses.

This together with £39.8m of new debt will be used to fund the acquisition including approximately £2.5m of one off capital expenditure and all other transaction fees.

Yew, based in Beverley, is a funeral and crematoria business which operates in the north of England. In order to minimise any potential competition concerns, Dignity is not acquiring 20 funeral locations that have historically been operated by Yew. These locations, together with the existing head office function and a manufacturing business have been transferred from Yew prior to completion.

All bar two of the funeral locations being acquired are freehold properties and both crematoria are freehold locations. As part of the acquisition, Dignity will take over the administration of Yew’s 9,000 outstanding pre-arranged funeral plans, of which approximately two thirds are eventually planned to be performed by Dignity. Dignity also intends to sell its own pre-arranged funeral plans through the new Yew branches post completion.

The unaudited tangible gross assets of Yew as at July 31, 2012 were said to be approximately £24m.

Dignity said that since its IPO, its acquisition strategy for growth has been consistent: prioritising client service, developing and acquiring additional funeral locations, developing, managing and acquiring additional crematoria and selling pre-arranged funeral plans.

Since flotation, Dignity has successfully acquired and integrated 93 funeral locations and 15 crematoria into the Sutton Coldfield-based group.

Dignity said there were significant opportunities to improve the financial performance of Yew’s funeral portfolio.  Yew achieved an average income per funeral of £1,565 in the 12 months to July 2012 compared to Dignity’s £2,350 in the year to December 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.  In addition, Yew performed an average of 155 funerals per location in the 12 months to July 2012 compared to Dignity’s average of 104 in the year to December 2011.  This should lead to a high degree of operational efficiency,” it said in a statement.

Like Dignity, Yew trades under established local brand names and has a strong and established trading record. It is one of the few remaining funeral assets of this size in the UK available to Dignity.  It significantly expands Dignity’s presence in the north of England, where the group has traditionally been under-represented. It therefore fits with the strategy of increasing sales of its pre-arranged funeral plans.
 
Mike McCollum, Chief Executive of Dignity, said: “The acquisition of Yew will increase our funeral presence in the north of England and further expand our crematoria portfolio. This is a quality business which will be an excellent addition to the Dignity group.”

The deal is expected to be marginally EPS enhancing in the year to December 31, 2013. No cost savings have been assumed.

The deal is expected to complete on January 25 and assumes a normal level of working capital. The share placing has been fully underwritten by Investec Bank and Panmure Gordon (UK).

DLA Piper’s Birmingham office advised Dignity on the acquisition, together with the share placing. Noel Haywood, client relationship partner for Dignity, led the acquisition, working with Nigel Cooke, corporate associate, and Simon Wright, corporate solicitor. John Campion, corporate partner, led the equity fundraising and James Crellin, legal director, led the debt financing.

“Dignity is an outstanding success story of a local plc which has achieved growth by focusing on tactical acquisitions which build upon its ability to provide the quality and excellent customer service for which the brand is known,” said Mr Hayward.

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