Funeral director Dignity gives thumbs up to £281m takeover

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

It has accepted a 550p per share approach for approximately 29 per cent of its equity by a consortium comprising investment firms SPWOne, Castelnau Group and Phoenix Asset Management Partners.

Three previous deals valued at 475p, 500p and 510p per share, respectively, were rejected last year by the Birmingham-based company before it received a 525p per share bid its board was ‘minded to recommend to shareholders.’

Following further negotiations, Dignity has decided to approve a new proposal that represents a 29.2 per cent premium to its closing share price on 3 January, the final business day prior to the offer period’s commencement.

Leading 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 the price comparison website Gocompare.com.

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

Though only in charge for 14 months, his tenure saw the firm return to profit and launch a new strategy, which includes a goal to boost its share of the UK funerals market share to 20 per cent within a decade.

Channon’s consortium argues that the takeover would strengthen Dignity’s long-term strategy by enhancing investment in its infrastructure, technology, employees, and marketing of its funeral plan products.

It also claims that the business would be more capable of navigating the changing regulations affecting the funeralcare industry, which were introduced two years ago following a probe by the Competition & Markets Authority.

Among the new rules the CMA brought in were a requirement for funeral directors to advertise standardised price lists and a prohibition on payments to incentivise hospitals or hospices to refer consumers to particular operators.

‘Dignity has long-term growth potential – the signs are clear to me,’ Wood said. ‘However, given the challenges and significant development work needed, the best way forward for Dignity is as a private company, benefiting from our unique combination of experience and customer-orientated expertise.

‘We are offering a very fair price in cash, or shareholders can stay on the journey with us as we look to implement our strategy to create significant value over the medium term.’

Dignity also told investors on Monday that it expected to report having made up to £275million in underlying revenue for 2022, a drop of at least £37million on the previous year.

Even though death rates have climbed since the Covid-19 pandemic started, the group said sales had been heavily impacted by a new pricing strategy and a sustained shift away from higher-priced products.

Alongside this, the firm anticipates underlying operating profits will have plunged by more than half to a maximum of £20million due to rising regulatory and operational costs, and investment related to its estate and facilities.  

Dignity shares ended trading 7.95 per cent higher at 543p on Monday, making them the top performer on the FTSE All-Share Index.