Wall Street asset strippers TPG have seized almost 20% of Australia’s largest funeral and cemetery stock InvoCare in a share market raid to capitalise on the regulatory void in the NSW cemeteries sector in the wake of the failure of the OneCrown administration. Callum Foote and Michael West report.
While stock market types have been scratching their heads trying to fathom how American private equity firm TPG could possibly justify paying a 40% premium for InvoCare shares, industry insiders get it. There is money in death, and the country’s largest market, Sydney, is running out of burial plots.
The NSW Government’s dithering over OneCrown Cemeteries, its failed attempt to consolidate the management of four NSW Crown Land Managers, has left the sector in a regulatory void ripe to be exploited by commercial operators. Amid fights between the Catholic Metropolitan Cemeteries Trust (CMCT) and other faith denominations, control of Sydney’s $5bn cemeteries sector remains up for grabs.
InvoCare owns almost 60% of funeral directors in NSW, performs almost 60% of cremations under brands such as White Lady, Simplicity Funerals and Value Cremations, the group is also sitting on the largest inventory of unsold burial plots in Sydney. With space running out, cemeteries full, there is value there.
White Lady, meet Quite Shady
TPG is the private equity group notorious in this country for snatching the profits from the sale of the Myer group and funnelling them to a tax haven before the Tax Office could get its hands on them. The TPG consortium bought Myer for $1.4bn in 2006, ripped out the cash, injected debt, did a sale and leaseback of the grand Myer properties and floated the company on the share market three years later for a cool $1.5bn profit. Investors did not do well.
The two TPG companies which sold the Myer shares were domiciled in tax havens, Luxembourg and the Cayman Islands. No tax paid in Australia. If TPG is successful therefore the likelihood of rising prices for burials, cremations and funeral services is likely to rise, especially given the market dominance of InvoCare.
A regulatory dead zone
While the NSW Government-owned cemeteries perform around 70% of burials in Sydney, major cemeteries like Rookwood, Macquarie Park and Eastern Suburbs Memorial Park are expected to close to new burials in the next 5 years.
Recent reports to the NSW Government, by pricing regulator IPART and The 11th Hour Report in 2020 have been warning of the demise of the Crown operators. They specifically recommended the creation of new government-owned cemeteries in order to counter the market dominance of InvoCare, price regulation for affordable burials and the regulation of the mostly unfunded $1.7 billion perpetual maintenance liabilities.
The NSW regulator, Cemeteries & Crematoria NSW (CCNSW) has completely failed to implement any of these recommendations. InvoCare is not subject to any price regulation nor has it set aside capital for its perpetual maintenance liabilities which industry insiders believe exceeds $150m.
The 11th Hour Report found that “The financial vulnerability of Crown operators threatens to distort the NSW cemeteries and crematoria market and competitive landscape. While Crown operators undertake approximately 72% of burials across Sydney, they have only 24% of estimated remaining supply.”
The majority of unsold burial space available in Sydney belongs to InvoCare, which the report finds will own “the largest stock of available cemetery land” when Crown-operated cemeteries run out of space in the next few years.
Invocare also undertakes 56% of cremations in Sydney. The report concluded that “Without new market entrants and the development of significant new Crown cemeteries, this private operator will have a dominant position across the funeral director, cremation and burial interment markets in Sydney.”
For the new CCNSW Chairman, Andrew Mills, who was appointed by the NSW Government at the end of 2022, this will be a significant test of his leadership and the relevance of the organisation that he leads.
An industry insider told Michael West Media that “with the demise of the government cemetery operators, which is highly likely given the indecision by the NSW Government and the failure to secure new burial land, InvoCare will be an unregulated vertically integrated, monopoly in Australia’s largest city.”
Unlike Sydney, Victoria has a statutory prohibition on privately owned cemeteries and crematoria. There is also price regulation by the Victorian Department of Health.
With TPG’s almost inevitable control of InvoCare, private equity will have the unfettered ability to set prices across the funeral, cemetery and cremation market due to the complete lack of competition.
To industry insiders, TPG’s 40% price premium punt on InvoCare can only be justified by exploiting the regulatory slumber of the NSW Government, CCNSW and the ACCC.
Due to the nature of death, all Sydner-siders can look forward to paying more to bury their loved ones and the reduced maintenance of cemeteries.
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Callum Foote was a reporter for Michael West Media for four years.
Michael West established Michael West Media in 2016 to focus on journalism of high public interest, particularly the rising power of corporations over democracy. West was formerly a journalist and editor with Fairfax newspapers, a columnist for News Corp and even, once, a stockbroker.