Our view: Park Lawn's proposal to acquire Carriage Services could be highly compelling for PLC shareholders given network complementarity, Park Lawn’s deep operating bench strength, and senior leadership team members’ employment history with Carriage. But at this time it would be premature to assess any potential upside given the extremely preliminary nature of discussions and limited disclosure, notably potential financing structure. We reiterate, however, that Park Lawn management has consistently been adamant that it would not conclude any transaction, regardless of size or strategic merit, that would be dilutive at the onset.
Key points:
Event: In response to an unsubstantiated article published yesterday in industry trade publication Connecting Directors, Carriage Services, Inc. (NYSE:CSV) announced this morning it had “initiated a process to explore potential strategic alternatives, possibly including a sale, merger or other potential strategic or financial transaction.” PLC subsequently confirmed that it submitted a preliminary, all cash, non-binding, conditional proposal to purchase all the outstanding stock of CSV. The article includes what appears to be a copy of Park Lawn’s proposal dated June 13, citing purchase price of $34/sh in cash (25% premium to 20-day VWAP) and support of affiliates of Brookfield Asset Management as equity partners.
All about price and structure: A simple combination of PLC+CSV could potentially take leverage north of 4.5x LTM EBITDA excluding synergies and without PF adjustment of LTM acquisitions, as preliminary offer implies EV of $1.4B for CSV, ~55% of which is net debt.
PLC release highlights "prudent capital structure," and an accretive transaction. Management has previously indicated being highly sensitive to investor concerns around leverage/potential equity dilution. In our view, that likely takes on additional weight at current valuation, with PLC trading at 9.6x C23E EBITDA (Ex. 3). Given transactional experience and financial capabilities of potential PLC partner, we would expect deal structure to satisfy PLC management commitment to non-dilutive financing.
Other suitors could emerge, PLC offer subject to due diligence. PLC has in the past walked away from potential acquisitions that appeared compelling at face value when due diligence surfaced issues and/or when a competitive process pushed valuation above PLC tolerance. Offer letter indicates DD should take approximately four weeks.
PLC senior leadership has unique insights into Carriage. Park Lawn CEO Brad Green, and President & COO Jay Dodds, respectively, held the roles of EVP, Strategic Development and General Counsel, and COO at Carriage Services prior to forming the Signature Group in 2012, suggesting they would be ideally suited to surface meaningful synergies.