Dignity agrees £281mn takeover offer

The UK’s biggest funeral provider Dignity has agreed a takeover that values its equity at about £280mn.

Dignity agreed the cash offer from a group led by its former chief executive Gary Channon and Sir Peter Wood, founder of insurer Direct Line, as it warned that rising costs would hit its full-year profit.

The group, which operates more than 700 funeral locations across the UK, has struggled in recent months, despite higher than average death rates, as customers have shifted towards cheaper products.

It expected underlying revenue for the 52 weeks to December 30 2022 to be £275mn, compared with £312mn in the previous year. Its operating profit for the year “will be no more than” £20mn, from £55.8mn over the previous year, it said in a trading update.

The company’s share price rose more than 8 per cent in early London trading on Monday, helping to ease a 22 per cent fall over the past 12 months.

The buyer consortium, which also includes investment firm Phoenix Asset Management Partners, already owns 29 per cent of Dignity. It will buy the remaining stake for 550p a share in cash, a near 30 per cent premium on the closing share price on January 3, the day before the company revealed it was in talks with a buyer. Including debt, that values the business at £790mn.

The consortium said Dignity would benefit from significant investment in modernising its infrastructure, increasing marketing and expanding its crematoria business.

The funeral sector has been criticised by the Competition and Markets Authority in recent years for high pricing. In 2021, the regulator intervened to force funeral directors to display standardised price lists and prevent them from soliciting business through places such as care homes.

Dignity said its costs had increased over the past year as it invested in its facilities and estate, and regulatory and operational expenses rose. Higher energy prices since Russia’s invasion of Ukraine have brought about a “cost of dying” crisis in the funeral sector, as crematoria are heavy users of gas.

The problems for the company, which operates 46 crematoria and has 725 branches, were exacerbated by cost inflation, especially for materials used to make coffins, and staff shortages. Strict social distancing guidelines during the pandemic meant that although there were more funerals, they were not as profitable.

Analysts at Peel Hunt noted this month that the company’s performance had been under pressure in previous years “despite a high death rate given the lingering effects of Covid”.

In September, the company posted a pre-tax loss of £156mn in the six months to June, down from a profit of £50.5mn the previous year.