Park Lawn Corporation
Stepping off the Carriage: Park Lawn withdraws preliminary all-cash proposal to acquire CSV
Our view: Reiterating our constructive view on PLC on the back of the Company's announcement that it had withdrawn its preliminary all-cash bid to acquire Carriage Services (NYSE: CSV) and has declined to further participate in CSV's strategic review process. In our view, PLC's decision to withdraw underscores management's disciplined approach to M&A. With the uncertainty surrounding the deal (price, structure, post-transaction leverage) lifted, in our view, so too should the overhang on the stock. Reiterating constructive view on PLC.
Key points:
History of the CSV situation: In late June 2023, an unsubstantiated article relating to the potential acquisition of Carriage Services, Inc. (NYSE: CSV) by PLC was published by a trade publication. CSV subsequently announced it had “initiated a process to explore potential strategic alternatives, possibly including a sale, merger or other potential strategic or financial transaction.” And PLC confirmed that it submitted a preliminary, all- cash, non-binding, conditional proposal to purchase all the outstanding shares of CSV at $34/share (total EV $1.4 B) with affiliates of Brookfield Asset Management as equity partners. Since that time PLC had remained adamant that any and all M&A was subject to rigorous due diligence and the same disciplined approach to capital allocation, and that regardless of size, the Company would walk away from any transaction that did not meet its targeted return metrics. Which, presumably, CSV did not.
Back to the basics of the M&A strategy: As part of its 2026 financial target of US $150 MM in EBITDA, management articulated average annual M&A spend of US $75-$125 MM in pursuit of high quality local rooftops with strong community legacy and management. Our F23E forecast assumes M&A spend toward the lower end of that range, in part due to higher funding costs. Actual annual M&A spend will ebb and flow with market conditions and asset availability, which in our view, is the best way to manage the business. PLC remains well positioned to fund growth with Q2 EBITDA leverage 2.16x/2.9x including debentures, and an undrawn balance of $113 MM on $300 MM credit facility. Our forecasts had not included any assumptions surrounding the CSV deal, and we view the consistent, deliberate cadence of M&A as a lower risk path to growth.
Reiterating constructive view: As evidenced by today's 4+% share price move intraday, eliminating the CSV overhang is a step toward normalization of valuation and performance. Although valuation is unlikely to improve meaningfully until we get a clearer line of sight on the macro backdrop/ consumer spending trends, recent compression is consistent with other consumer-oriented small-cap names in our coverage. Nonetheless, we reiterate our conviction around PLC as disciplined acquirers and operators in a segment that should benefit from the long demographic tailwind of the aging population. PLC is on the RBC CM Small Cap Conviction List.