Park Lawn taps public markets to fuel its long-term growth
When you think about industries with a growth profile, you probably imagine technology companies disrupting the old way of doing things, or perhaps real estate groups benefiting from a strong commercial real estate market.
The funeral business is likely not on your list.
Yet Park Lawn Corp. (TSX: PLC) – the largest public, Canadian-owned funeral, cremation and cemetery owner and operator – is delivering exactly the kind of rapid growth that captures investor attention, and it's executing with excellence while doing so.
The Toronto-based company was recognized earlier this year as an inaugural member of Toronto Stock Exchange's (TSX) TSX30 ranking, which celebrates the 30 top-performing stocks over the last three years, based on dividend-adjusted share price appreciation. Park Lawn's shares have jumped 131% over this period. Its total return since 2013 – which includes both price appreciation and dividends and distributions – is even more impressive, at more than 300%.
Since becoming CEO in 2013, Andrew Clark has embarked on a period of aggressive business expansion, underpinned by the company's three-pronged strategy of focusing on acquisitions, growing organically and improving its margins. What began as a relatively small domestic business today is a North America-wide enterprise with operations in five Canadian provinces and 14 U.S. states.
Clark credits Park Lawn's ability to accelerate its growth in a significant way to the company's ability to access capital through TSX. While the company had been a public entity in one way or another long before he took the top job, the team decided in 2013 that TSX and its deep pool of investor capital would be the long-term path forward for Park Lawn.
"We always had a vision and an ambition for growth," Clark said. "Accessing the capital markets through TSX allowed us to expedite our plans."
There were three key reasons why this made sense.
First, at the time, Park Lawn was an income trust with a monthly dividend in a low interest rate environment.
"That allowed us say to investors, ‘look, we have growth plan – we pay a very attractive, sustainable yield. We are going to pay you that dividend to wait while we execute and grow.'"
Second, there was a scarcity of public issuers in the funeral services market, with just six in North America. After 2014, if investors wanted to invest in this space, Park Lawn was the only direct option, which "meant that we had some inherently defensible features" as an investment, Clark added.
Last but not least, the funeral sector is fragmented, full of small, private and often family-owned businesses. If acquisitions were going to be a part of the strategy, then the public markets offered Park Lawn an attractive currency for deal making. The company has since become an industry consolidator: In 2018 alone, it spent $275 million on acquisitions, and as of its second quarter of 2019, it has earmarked another $170 million for more deal making.
Public markets offer incubation period, and permanent capital
In its current form as a public company, Park Lawn first started trading on TSXV before graduating to the senior market in 2016. This makes it something of a standout among most small- and mid-sized companies in Canada, said Ryan Thomas, TSX's head of business development for diversified industries.
"The reality is that not many CEOs and entrepreneurs have going public on their radar early on as one of their options," Thomas said. Instead, many companies believe they have to be in a position to launch a large, "swing for the fences" IPO before they even think about the idea.
However, failing to consider the public markets as an early source of capital can direct companies into the hands of venture capital and private equity firms, which have a runway of just a few short years before potentially forcing the business into an exit or sale. This can have significant, and not always positive, implications for the strategy of the business, as well as how it chooses to grow.
TSXV, meanwhile, can offer companies an "incubation period" during which they can lay out their strategic foundations for growth and become comfortable with regularly reporting results and other types of disclosure obligation, Thomas said.
"You can slowly build your team and your level of confidence in the public markets for the first few years before getting on the radar of investors and analysts in a bigger way."
Park Lawn is an excellent example of a company that used TSXV as a pivot from the income trust structure that was phased out in 2011. Park Lawn reset its structure while embarking on a period of significant growth, which has only been enhanced by graduation to TSX, thanks to greater amounts of capital and a larger analyst following.
Indeed, that level of patient pace of transition was one of the reasons why Park Lawn committed to a public-markets path early on, Clark says.
"One of the things that we like about the public markets is that while individual shareholders may change, the capital is permanent. That's a highly attractive feature."
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