Key points:
Operators first. Full stop. The investor event really brought forward the benefits of PLC’s decentralized, operator-first model and mantra. PLC puts significant emphasis on location leadership, with each property run like an independent under the umbrella of a decentralized organization and flat management structure that efficiently channels access to the executive team. Focus on people is also a key differentiator, critical to retention of talent at all levels.
Why does it matter? It underpins PLC’s self-sourcing M&A strategy. Death care operations are often multi-generational businesses with deeply rooted community relationships. By retaining target company legacy, onboarding key personnel, and aligning interests, PLC naturally attracts operators that value preservation of brand heritage—intangible value that goes well beyond price paid and reinforces the self-sourcing M&A model as word of mouth circulates. PLC rarely enters competitive bid situations, nor is it typically the highest bidder. Its M&A approach is highly disciplined around valuation, targets low/mid-teens IRR with monetary value supplemented by preservation of heritage capital. It’s also a key element that underpins PLC’s ability to have the same average annual M&A target of $75–125 MM as market leader SCI, notwithstanding the 10x size differential.
Demographic tailwind as inevitable as country music at a honky-tonk. Notwithstanding moderating death rate coming out of the pandemic, the medium- to long-term demographic tailwind is well documented and well understood. Small increments in the death rate should provide meaningful tailwind to operating leverage due to the high proportion of fixed costs. While operating leverage is a double-edged sword as the death rate ebbs and flows, the key point for long-term investors is that once the dominos start falling, organic earnings growth should accelerate meaningfully. At that point, well-managed, operations-focused businesses with strong management and systems (FaCTS, wink-wink) will be best positioned.
We remain highly constructive on PLC, the industry outlook, and its position within it. We recommend that investors benchmark valuation against broader attributes, namely: i) defensive, relatively inelastic demand; ii) demonstrated resilience through downturns; iii) demographic tailwind; and iv) industry fragmentation with succession challenges.