InvoCare Limited (ASX: IVC) announced yet another acquisition this morning. The company told the market that it has entered into an unconditional sales agreement to acquire English Rose Funerals based in Adelaide. The acquisition is expected to complete in mid July 2018.
Rose Funerals operates from a single location and carries out around 140 funeral services a year, which generates revenue of $0.7 million. InvoCare is also getting a freehold property with this acquisition.
The current owners will stay with English Rose, they have 30 years of combined experience.
Martin Earp, the CEO of InvoCare, said "English Rose Funerals provides a unique brand proposition that augments our existing businesses in Adelaide (White Lady, Blackwell and Simplicity).
"We are pleased to welcome the English Rose team to InvoCare and are excited about the opportunity to leverage our shared services network in Adelaide to help support and grow a high quality business. Together, we are confident we are well positioned to build on the success of English Rose Funerals."
Is the acquisition strategy the right one?
As InvoCare said, this is now the sixth acquisition it has announced this calendar year. It has announced:
- English Rose with $0.7 million of revenue
- Lester & Son with $3.5 million of revenue
- Hope & Sons with NZ$5.8 million of revenue
- Whitestone with NZ$1 million of revenue
- Southern Highlands with $0.7 million of revenue
- J A Dunn with $1 million of revenue
Combined, this is about $12 million of annualised revenue that InvoCare has added. This isn't a huge amount for InvoCare, but it does represent 2.5% of FY17's revenue. Considering sales increased by 1.8% in FY17, this is adds up to an important potential increase for this year and next year.
InvoCare seems to be trying to snuff out the challenge from Propel Funeral Partners Ltd (ASX: PFP) by expanding into regional areas. It isn't stating what prices it is paying for these acquisitions. Perhaps they are doing so for the sellers' privacy, but it could also be because the price is high.
Even if the price is high, it could still be a good strategy because many of these businesses have been operating for many decades, if not over a century. InvoCare is permanently removing the opportunities for Propel.
I think InvoCare is a good ultra-long-term buy. Death volumes are expected to grow by 1.4% per annum between 2016 to 2025 and then increase by 2.2% per annum from 2025 to 2050. There aren't any other companies that can point to growth of their industry for the next 30 years. I say the above statistic a lot because I think it's a great stat and points to the potential future organic growth.
It's trading at 24x FY19's estimated earnings. I'd be happy to buy a small parcel at today's price, but I'm going to wait for the result in August before buying because the share price could fall if earnings aren't as good as some people are expecting due to the lower death rate and refurbishments.
