Death care has become a hot business, thanks to the HBO hit series "Six Feet Under," about a family funeral business. The industry also has become hot turf for investors.
GTCR Golder Rauner, Chicago, with $4.5 billion under management, has been investing in the $5 billion funeral home industry since 1986, said Bruce Rauner, managing principal, in a recent interview. The private equity fund manager has $4.5 billion under management.
"The funeral home industry has huge margins - something like 35% to 40% before taxes. It's also a business, with strong long-term fundamentals even though people are living longer," Mr. Rauner said. Currently his firm owns Keystone Group Holdings Inc, Tampa. GTCR started Keystone four years ago to acquire funeral homes and cemeteries.
Death care is typical of the niche businesses that have been GTCR's specialty. "We look for fragmented industries where we can form a new partnership with an outstanding CEO or management team, start a new corporation and build what would become the most dominant player in the field, through internal growth and a series of strategic acquisitions," Mr. Rauner said. Other niche businesses in the firm's portfolios include the paging business, coin-operated laundry machines, providers of motor coach transportation, hospital management and debit card processing.
The industries may vary, but the strategy doesn't, noted Mr. Rauner. "After four or five years, when our companies have become successful, we look for an exit strategy, usually by selling the company to a competitor in their industry or taking it public."
Most recently, for example, it sold American Medical Laboratories Inc. to Quest Diagnostics Inc. in an all-cash transaction of $500 million, including debt of $160 million. GTCR had partnered with Timothy J. Bronik, president and CEO of the company, to purchase American Medical in 1997, investing $7 million. GTCR's profit after the sale was $200 million.
Investors in GTCR funds include the $41 billion Washington State Investment Board, Olympia; $39 billion Minnesota State Board of Investment, St. Paul; $32 billion pension fund of Lockheed Martin Corp., Bethesda, Md; $9 billion Illinois State Board of Investment, Chicago; and the $7 billion endowment fund of Yale University, New Haven, Conn.