Dignity, one of the UK’s largest funeral providers, is set to be taken over by a consortium of financiers led by Sir Peter Wood, the founder of insurer Direct Line.
The company said it would be “minded to recommend” a cash offer that values the company at £262mn, or 525p a share, and represents a 23 per cent premium to Tuesday’s closing share price.
The consortium, which is also fronted by City fund manager and former Dignity executive Gary Channon, has already acquired 29 per cent of Dignity’s share capital.
Dignity’s shareholders would have the option to remain partially invested in the company through an unlisted holding company or through Castelnau, a London-listed investment vehicle that is part of the consortium.
Both parties said that discussions had begun in mid-October with an opening shot of 475p a share. At the time, that represented a 37 per cent premium to the prevailing share price. The fourth offer of 525p was tabled in mid-November, Dignity added.
In a statement, the consortium said its proposal was “a compelling opportunity” at a time when the company “faces substantial operational challenges”.
It added that Dignity’s growth prospects “can only be realised over a longtime horizon” and “require significant additional near-term capital”.
“Dealing with that in the public markets will be difficult and potentially damaging to the delivery of the core strategy and the brand reputation,” it concluded.
Channon, the co-founder of Phoenix Asset Management, briefly served as executive chair and chief executive of Dignity. His involvement in the bid is the latest chapter in a storied recent history. He was installed as executive chair of Dignity at an extraordinary meeting of shareholders in April 2021 and later moved to the chief executive position before making way for Kate Davidson, the current chief executive, in June last year.
Sir Peter said: “Dignity has long-term growth potential — the signs are clear to me. But the changes and significant development work and investment needed to enable this growth mean the best way forward for Dignity is as a private company”.
The wider funeral sector has been beset by difficulties in recent years. Although the coronavirus pandemic increased the UK’s death rate, it also resulted in significant additional operating costs.
At the same time, the government required simpler and smaller funerals — which were less profitable for providers such as Dignity and Cooperative Funeralcare — in order to enforce social distancing.
More recently, the sector has been hard hit by increased energy prices which have raised the cost of cremations, and staff shortages.
It has also been the subject of two regulatory probes, one into the cost of funerals themselves and the other into the promotion of pre-paid funeral plans.
Dignity has made a pre-tax loss, before exceptional items, in each of its past four financial years and its share price has fallen sharply from the peaks of over £20 reached in 2016 and 2017 to £4.35 immediately before the bid talks were revealed on Wednesday.
The stock closed at £5.35, up 25 per cent on the day.