CVC’s funeral business bets on brisk market growth

A giant dragon-shaped structure is seen inside the Nirvana Memorial Park on the outskirts of Kuala Lumpur, the capital of Malaysia, on June 23. The air-conditioned dragon-shaped structure houses the gilded urns, which contain 6,700 urns. Photo taken on June 22, 2000.

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HONG KONG, Sept 27 (Reuters Breakingviews) – The concept of Nirvana, which implies a state of detachment or freedom from suffering, may not resonate with today’s battered market participants. But growing a business in a less-penetrated market is different. That’s the target of European buyout firm CVC Capital Partners, which is considering an offer for its “death care” services business, whose focus on Southeast Asia makes it a gauge of broader investor interest in the region’s growing middle class ​​standard.

CVC bought Nirvana Asia for $1.1 billion in 2016, less than two years after the Malaysia-based group listed in Hong Kong at roughly the same valuation. It then focused on selling high-quality cemeteries so the whole family could rest in peace together, and well-planned funerals, free from the traditional reluctance to discuss matters such as death and inheritance.

Nirvana’s sales strategy to potential buyers may now be largely unchanged. The funeral services market, especially so-called “advance demand” products, is often compared to life insurance — in fact, a Chinese insurer was a cornerstone investor in the company in 2014. Insurance in many fast-growing emerging Asian markets is a common term for insurers, such as $28 billion Prudential and Richard Li’s upstart rival FWD.

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In fact, according to a recent FWD filing, Nirvana’s home and largest market, Malaysia, has a life insurance penetration rate of less than 4%, while more developed regions such as Singapore and Taiwan have life insurance penetration above 10%.

A $2 billion deal, if equal to the 20 times CVC paid for the stock in 2016, would show that net profit has been growing at a strong 12% CAGR since then.

The impact of the pandemic lockdown on Nirvana’s sales force’s ability to seek new business will derail growth. Calculated at $1.6 billion, the compound growth rate is 9%. This is slightly higher than what FWD is offering for the Malaysian life insurance market and is a more reasonable level.

Back in 2014, Nirvana debuted in Hong Kong and fell 11% on its first day. Southeast Asian investments were then overshadowed by excitement over China’s potential. This is not the case now. This time around, Nirvana’s strong price could help energize more Southeast Asian deals.

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Background news

According to a Reuters report on September 9, European private equity firm CVC Capital Partners is considering the acquisition of Malaysian funeral service provider Nirvana Asia. 15, citing sources.

Bidders have entered the second round of the business, which specializes in selling much-needed quality products, such as home plots in cemeteries. The price is expected to be between $1.6 billion and $2 billion.

Nirvana Asia was listed in Hong Kong in 2014 and was privatized by CVC in 2016.

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Edited by Una Galani and Thomas Shum

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The views expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and impartiality in accordance with the principles of trust.

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