Donald McReavy hasn’t worked for his family’s funeral home business in decades.
But the Colorado minister now wants a seat in the boardroom, a share of the profits and a voice in management, court records show.
His family, which recently bought McReavy’s 20% share of the business without his consent, is fighting him every step of the way. They want him to take his $4.3 million and go home.
Industry experts said the legal battle over control of Washburn-McReavy Funeral Corp. could signal the end of a company that bills itself as Minnesota’s “oldest and largest independent funeral establishment.” Consultants involved in recent deals note that other funeral companies were sold after minority owners were bought out or boards took other steps to streamline operations.
For now at least, the McReavy family said it has no intention of selling a Minnesota institution whose roots go back to 1857.
With 16 locations in the Twin Cities and annual revenue of about $17 million, Washburn-McReavy would likely fetch top dollar in today’s market. Consultants said a handful of major funeral home chains have been looking for ways to expand in Minnesota, which has largely resisted the big companies and remains dominated by small, family-owned funeral homes.
“The McReavy family is a sainted name in this profession,” said Dan Isard, an Arizona consultant who has worked on more than 500 funeral home transactions. “They have operated at the highest level of professionalism.”
The stakes are high around the family dispute. At a January meeting, board members concluded that it would not be possible to meet Donald McReavy’s demands “without placing the future of the businesses at risk,” court records show.
“Don surprised us all with a list of demands that really went against the ground rules that had been operating all along,” said attorney Philip Tilton, who represents Donald’s brother and other family members who own the business. “He wanted to be on the board of directors. And there is no reason to put him on the board. He is not active in the business. He is sitting in Colorado. So that wasn’t going to happen.”
Donald McReavy and his attorney, Douglas Kelley, declined interview requests.
“The disputes with my family go back almost four decades to when I left the family business to pursue full-time ministry,” Donald McReavy said in a statement. “The dispute we have today is over shareholder rights that stem from the board’s continued efforts to deprive me of ordinary shareholder rights and protections that has culminated in them squeezing me out last month.”
The dispute began in 2016, when Donald McReavy began making plans for what to do with his shares when he dies. McReavy, now 64, wanted to give his shares to his children, according to his lawsuit.
Those wishes ran into a brick wall. In drafting the company’s shareholder agreements, the McReavy family did everything it could to prevent outsiders from taking control of the company. And none of Donald McReavy’s children have ever worked for Washburn-McReavy. Moreover, his family must sell his shares to other relatives who own shares upon his death, according to a 2000 contract that he signed.
Tilton said the arrangement was created by Donald’s parents, William L. and Kathleen McReavy, who wanted Donald to share in their wealth even though he stopped working for the family business more than 30 years ago. Tilton said that is why Donald McReavy received nonvoting shares instead of voting shares in the company.
“Donald never paid a nickel for any of his shares,” Tilton said. “They were given to him by his parents. There was never an intent that those shares would give him a right to participate in the management of the business. … The senior McReavys have always felt that those who work for the business have a vested interest in the company and should have a say in the business. Those who don’t work in the business have no say in the day-to-day management of the business.”
After rejecting his estate plans, Donald McReavy said in his lawsuit, the family began taking steps to buy out his shares. But the two sides could not agree on terms. Donald McReavy hired an appraiser who said his shares in the business, including affiliated real estate companies, were worth $11.3 million. The family offered him $6.5 million in 2018, court records show.
Though Donald McReavy refused the offer, board members held a meeting in February and voted to buy his shares in the two main operating companies, over his objections, for $4.3 million. The deal did not include any of the affiliated real estate companies, Tilton said.
The company’s shareholder agreements allow the company to force an “involuntary” sale as long as it pays “fair value” for the shares. In his lawsuit, Donald McReavy accused his relatives of “intentionally” padding the company’s expenses by spending an extra $800,000 on salaries, management fees and other costs since the start of the dispute, reducing the company’s overall profit margins by a third.
Such moves could also reduce the value of Washburn-McReavy. After pressing the company for more financial information, Donald McReavy said he received a call from his brother, company President William W. McReavy, who told him the family business was “performing poorly and that the prospects for future success were challenging given the impact of cremation services on the industry and in light of other market forces,” according to his lawsuit.
In fact, cremation overtook traditional burials in the U.S. for the first time in 2016, according to the National Funeral Directors Association. The shift has been even more pronounced in Minnesota, where 66.8% of funeral services are expected to involve cremation in 2020, vs. the national average of 56.4%.
“The industry is going through some major changes,” said David Nixon, an Illinois funeral home consultant. According to the Funeral Directors Association, a simple cremation typically costs about $2,400 vs. $7,360 for a full-service funeral.
Tilton acknowledged the challenges facing Washburn-McReavy.
“Are there clouds on the horizon with this increasing trend towards cremation? Sure,” Tilton said. “Obviously the revenues are lower. But it is still a very profitable business and they expect it to be for years to come.”
Tilton said Donald McReavy can undo the forced purchase of his stock only if he can prove the company acted fraudulently.
“He is asking for all sorts of documents, with the hope that he will somehow discover some terrible fact,” Tilton said. “But nothing has arisen. To my knowledge, there isn’t anything there.”
To help determine whether he received a fair price for his shares, Donald McReavy has asked the court to force Washburn-McReavy to let his sons Daniel and David McReavy review financial statements and other confidential records. The company has agreed let David McReavy see the documents, noting that he has a master’s in business administration and works for a respected defense contractor, Lockheed Martin.
However, the company is unwilling to grant the same privileges to Daniel McReavy, claiming he shared inside information about a pending funeral home acquisition with a competitor in 2017, alleging the deal violated antitrust laws. The competitor notified the seller and the deal collapsed, according to the company.
Daniel McReavy, a former investment adviser who now contributes to an online community news service called the NWZ Paper, declined to comment.
“At no point have I or any of my sons ‘blown up’ or caused any transaction not to occur,” Donald McReavy said in his statement. “The company decided not to pursue the referenced transaction because the price demanded by the seller was too high. I am saddened that this dispute has reached this point. I have no further comment.”