EXECUTIVE SUMMARY
Service Corporation International (SCI) started off with a single funeral home in Houston, Texas. By the year 1994, SCI had a total of 1471 Funeral Homes and 220 Cemeteries. The number of deaths are steadily increasing at around 1% per year. SCI knew that mergers and acquisitions was the only way it could grow rapidly.
In the beginning of 1960s, SCI acquired two funeral homes and slowly started expanding in the North American market. By 1970s, SCI was growing rapidly and at the end of 1980, became the largest consolidator in the death care industry. These acquisitions along with the cluster strategy helped SCI increase its efficiencies and hence, their bottom line.
Post 1980, SCI started integrating vertically which mostly resulted in losses- about $48 million. In 1989, SCI stopped this strategy and concentrated on streamlining their acquisitions by placing more emphasis on metropolitan areas and divesting its rural funeral homes where they couldn't implement their cluster strategy.
Mergers and Acquisitions (The Sopranos)
English: Photo of Overton Funeral Home, Inc - Isli...
The Columbia Funeral Home, immediately north of th...In their bid to establish themselves as a dominant firm in the industry, they started acquiring other large North American consolidators. From 1992 onwards, SCI started expanding globally in Australia, UK and France. Though these acquisitions established SCI as the largest death care provider in Europe and opened doors into other markets, they had problems and could not approach SCI's standard profit margin of 30%. Financially, they may not have been beneficial, but strategically they may prove to be otherwise.
To fund further expansion, SCI would have to increase their debt and equity. Because of their aggressive expansion in risky markets, they would pay a higher debt interest rate and increasing the equity would cause a drop in EPS, ultimately lowering their share prices. SCI should continue with their expansion strategy but they should do so cautiously.