Vestar Wears Black for Latest Purchase –

Vestar Capital Partners sewed up a deal in January to acquire Service Corp. International’s (SCI) French funeral operations business, OGF Group, in a transaction valued at EURO300 million, or $370 million. The deal is expected to close in the first quarter.

The funeral home business has generated quite a buzz in recent years with the rising popularity of HBO’s “Six Feet Under,” but for Vestar this was not the trend the firm was chasing. “The sector has a very stable and predictable cash flow stream,” Vestar President Robert Rosner told Buyouts. “Its performance has nothing to do with economic cycles and in this respect you have a lot of stability.”

To acquire the business, Vestar teamed up with OGF management, and the two parties will acquire stakes of roughly 65% and 10%, respectively, while SCI holds onto a 25% slice of the unit. The financing will come from a combination of senior and subordinated debt, arranged by Lehman Brothers, and will cover approximately two-thirds of the purchase price.

OGF, originally founded in 1844, was acquired by SCI in 1995 from French utility group Lyonnaisse des Eaux. The business’ product offerings encompass the entire range of funeral needs, including the manufacturing and sale of coffins, burial and cremation services, as well as at-need and pre-need services. The company currently has over 340 funeral homes, 40 crematoriums and employs roughly 6,000 people. In a research note to clients, Merrill Lynch estimated that the French business generated roughly $70 million in net income in 2003, on $620 million in revenue.

SCI is divesting the business in a move to reduce its debt, with $162 million due in 2004 and $272.5 million of debt scheduled to mature next year. The company, which was responsible for the burials of Elvis Presley and Jackie Onassis, also agreed to a $100 million settlement related to its operations in Florida, which contributed to its cash crunch.

In The Baby-Boomer Wake

While the funeral business has never been considered a high-growth industry, Rosner does expect to see some material growth as the baby-boomer generation continues to age. Additionally, he expects OGF to take advantage of a trend in France that has seen more and more people opt for cremation rather than burial. “In France, cremation has historically been at a very low rate,” Rosner said. “Cremation currently represents 22% of the market, whereas not too long ago it was at just 10 percent.”

While Rosner would not comment on a potential exit for OGF, other European SCI carveouts have looked to, or found success in, the public markets. Recently, Montagu Private Equity’s UK funeral services platform Dignity has been reportedly eyeing a GBP100 million IPO. Montagu acquired the business in 2002 for GBP200 million in a deal that, similar to the OGF transaction, allowed SCI to hold onto a 20% stake. Also, in the fourth quarter of last year, former SCI arm, Invocare – which the company sold to Macquarie Direct Investments and again held onto a 20% stake was rolled out to the public in an IPO.

For the OGF purchase, Vestar used its $2.5 billion Vestar Capital Partners IV fund. The acquisition of OGF represents the firm’s fourth European investment in the past 18 months, and follows up its $725 million purchase of FL Selenia last September, as well as its purchases of SAB Wabco and ZML from 2002.


Buyer: Vestar Capital Partners

Target: OGF Group

Seller: Service Corp. International

Advisors: VCP: Credit Suisse First Boston; SCI: Lehman Brothers

Lawyers: VCP: Cleary Gottleib; SCI: Linklaters

Accountant: VCP: Ernst & Young and Deloitte & Touche