Funeral director Dignity gives thumbs up to £281m takeover

Funeral services provider Dignity has agreed to a takeover worth approximately £281 million by a syndicate led by one of its former CEOs.

It has accepted an approach of 550 pence per share for about 29 percent of its equity by a consortium made up of investment firms SPWOne, Castelnau Group and Phoenix Asset Management Partners.

Three previous deals worth 475 pence, 500 pence and 510 pence per share respectively were rejected by the Birmingham-based company last year before receiving an offer of 525 pence per share that the board “intended to recommend to shareholders’.

After further negotiations, Dignity has decided to approve a new proposal that represents a 29.2 percent premium to the stock’s closing price on January 3, the last business day prior to the start of the offering period.

Spearheading the acquisition is SPWOne boss and serial entrepreneur Sir Peter Wood, who founded insurers Direct Line and Esure Group and was an original investor in price comparison website Gocompare.com.

He has joined forces with Peter Channon, Phoenix’s chief investment officer, who became CEO of Dignity in April 2021 following a coup that ousted chairman Clive Whiley.

Although he was only in charge for 14 months, his tenure saw the company return to profit and launch a new strategy, aiming to gain one-fifth of the UK’s funeral market share within ten years.

The consortium says the acquisition would strengthen Dignity’s long-term strategy by increasing investments in infrastructure, technology, employees and marketing of its funeral products.

It also claims the new leadership would be better able to navigate the changing regulations affecting the funeral industry, introduced two years ago following an investigation by the Competition & Markets Authority.

Among the new rules introduced by the CMA included a requirement for funeral directors to advertise standardized price lists and a ban on payments to incentivize hospitals or hospices to refer consumers to certain operators.

“Dignity has long-term growth potential — the signs are clear to me,” Wood said. “However, given the challenges and significant development work required, the best way for Dignity as a private company is to take advantage of our unique combination of experience and customer-facing expertise.

“We offer a very reasonable cash price, or shareholders can stay with us as we look to implement our strategy to create significant value over the medium term.”

Dignity also told investors on Monday it expected to report it had earned up to £275m in underlying revenue for 2022, down at least £37m from the previous year.

While death rates have risen since the start of the Covid-19 pandemic, the group said sales were heavily impacted by a new pricing strategy and a continued shift away from more expensive products.

In addition, the company expects underlying operating profits to have fallen by more than half to a maximum of £20 million due to higher regulatory and operational costs and investments related to the estate and facilities.

Dignity shares were the best riser on the FTSE All-Share Index late Monday afternoon.