Breakingviews: CVC’s burial business bets on lively market growth

The concept of Nirvana, implying a transcendent state or escape from suffering, may not resonate with today’s battered market participants. A pitch for a growing business in an under-penetrated market is different though. That’s the goal for European buyout shop CVC Capital Partners, which is considering offers for its “death care” services business, and whose focus on Southeast Asia makes it a gauge for wider investor interest in the region’s rising middle class.

CVC bought Nirvana Asia for $1.1 billion in 2016, less than two years after the Malaysia-based group had floated in Hong Kong at roughly the same valuation. Then, it pitched its focus on selling premium burial plots so entire families could lie in rest together, as well as elaborate funerals, shrugging off any traditional reluctance to discuss issues such as death and succession.

Nirvana’s sales spiel to would-be buyers now might be largely unchanged. The death care services market, especially for so-called “pre-need” products, is often likened to that for life insurance – indeed, a Chinese insurer was a cornerstone investor in the company in 2014. The business potential afforded by low rates of cover in many fast-growing Asian emerging markets is a familiar refrain from insurers such as $28 billion Prudential and Richard Li’s upstart rival FWD.

Indeed, life insurance penetration rates are below 4% in Nirvana’s home and biggest market, Malaysia, according to a recent filing by FWD, compared with rates above 10% in more developed places including Singapore and Taiwan.

A $2 billion deal, if it equated to the same multiple of 20 times earnings CVC paid for the equity in 2016, would suggest net profit has been growing at a punchy annual compound rate of 12% since that point.

Growth will have been disrupted by the effect of pandemic lockdowns on the ability of Nirvana’s sales force to canvas for new business. At $1.6 billion, compound growth would have been 9%. That’s just above the rate cited by FWD for the Malaysian life insurance market and would be a more reasonable level.

Back in 2014, Nirvana managed an inglorious Hong Kong debut, falling 11% on its first day. Southeast Asian investments were then heavily overshadowed by excitement over China’s potential. That’s not the case now. A strong price for Nirvana this time could help bring life to more Southeast Asian deals.

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