Service Corporation Internation
Service Corporation International
This case entails Merger and Acquisition analysis of Service Corporation International’s (SCI). SCI has historically relied on growth through acquisitions, which has helped it with synergies due to the “cluster” approach. The growth through acquisition has turned out to be effective strategy to build on synergies by sharing various costs such as cremation, transportation, staffing, and inventory to achieve economies of scale. Further the three criteria of finding the target countries with similar funeral customs, high personal income and ability to hedge currency risk seem to be consistent with the long term fundamental core competency of SCI. This acquisition strategy has helped SCI to grow revenues by 45% in spite the slow growth of the industry with CAGR of 1%. Such high growth strategy has built in the market expectation in terms of 18% -22% EPS growth as the analyst on the street belief that the company will continue to grow at the compound rate of 18.4% - the rate at which it has grown over the past five years. Given the current scenario, Champegne’c concern regarding growth for the growth’s sake is warranted for the following reasons:
High Prices of Acquisitions
In order to maintain the growth of 20% in earning per share Service Corporation has made acquisitions in which it paid more than the industry standards. For instance both the Great Southern and Plantsbrook acquisition were purchased at record prices in which Service Incorporated paid 3.6 times the revenue when the market estimated a multiple factor of 2-2.4 times revenue. As a result the target companies in future may bid up the price because they may anticipate the Service Incorporated would be ready to pay higher prices to continue with their inorganic growth strategy.
Further the acquisition of OGF/PFG in France seemed to be contrary to their growth strategy, which was initially mentioned in the case analysis. The OGF/PFG operations in Switzerland, Italy,
This case entails Merger and Acquisition analysis of Service Corporation International’s (SCI). SCI has historically relied on growth through acquisitions, which has helped it with synergies due to the “cluster” approach. The growth through acquisition has turned out to be effective strategy to build on synergies by sharing various costs such as cremation, transportation, staffing, and inventory to achieve economies of scale. Further the three criteria of finding the target countries with similar funeral customs, high personal income and ability to hedge currency risk seem to be consistent with the long term fundamental core competency of SCI. This acquisition strategy has helped SCI to grow revenues by 45% in spite the slow growth of the industry with CAGR of 1%. Such high growth strategy has built in the market expectation in terms of 18% -22% EPS growth as the analyst on the street belief that the company will continue to grow at the compound rate of 18.4% - the rate at which it has grown over the past five years. Given the current scenario, Champegne’c concern regarding growth for the growth’s sake is warranted for the following reasons:
High Prices of Acquisitions
In order to maintain the growth of 20% in earning per share Service Corporation has made acquisitions in which it paid more than the industry standards. For instance both the Great Southern and Plantsbrook acquisition were purchased at record prices in which Service Incorporated paid 3.6 times the revenue when the market estimated a multiple factor of 2-2.4 times revenue. As a result the target companies in future may bid up the price because they may anticipate the Service Incorporated would be ready to pay higher prices to continue with their inorganic growth strategy.
Further the acquisition of OGF/PFG in France seemed to be contrary to their growth strategy, which was initially mentioned in the case analysis. The OGF/PFG operations in Switzerland, Italy,