Finding Growth and Profits in America’s Heartland
KANSAS CITY, KS — This popular Midwestern city is home to a variety of consolidated and independent contractors. As the center for a growing number of consumer service companies, Kansas City affords a lot of business opportunities for commercial contractors such as The Fagan Co./ComfortSystems USA.
The 42-year-old business started out as Bill Fagan Inc. The company eventually changed hands through some of the Fagans’ older sons and became The Fagan Co. in 1981. At the time the company specialized in commercial hvac design-build. The four owners were Bill C. Fagan, Tom Fagan (he has since left the company), Bob Fountain (eventually bought out by Bill Iler), and Ken Karr.
The company operates satellite divisions in Wichita and Fort Scott, KS, and Springfield, MO, employing almost 400 workers. In the first full year (1999) following its acquisition by ComfortSystems USA (Comfort), the company had revenues of $50 million.
Karr, Fagan Co. president, said that the owners had looked at ways to transition the business using employee stock ownership, but “The business had grown so much that there really wasn’t anyone who could afford to buy it.”
The owners were approached by consolidator GroupMAC in February 1998 and they decided to explore the possibility of selling to a larger organization. After studying their growth pattern and deciding that the company would soon become “too big” to sell, Fagan owners sold to Comfort because they felt the company was more focused on the same markets as Fagan.
Adjusting to AcquisitionFollowing an acquisition, it would be natural to assume that some employees would leave the company because of job shifts or uncertainty, but that hasn’t been the case with Fagan.
“Combining our efforts with Comfort has not resulted in much turnover,” said Karr. “But one would expect changes when a small company becomes part of a larger organization, e.g., monthly statements and projections.
“The biggest challenge is one of credibility with our employees. One of our employees went out looking for a job because the company he had previously worked for was bought up and he lost his job.
“There was a pins-and-needles time for us and frustration for the employees. It has taken two years to get over the initial hump, but now we have regained momentum.”
The momentum has been helped along by the steady growth of the Kansas City commercial market. The area is predominantly dotted with service companies such as Sprint and DST Systems, as well as being the home base for Hallmark Greeting Cards. The healthcare industry is also very big in Kansas City.
For a design-build commercial/industrial contractor like Fagan, a union employer, there are many growth opportunities, if — and it’s a big if — there are enough people to man the projects.
“The Kansas City market has been so busy that we have stretched the unions for all of the help they can provide,” Karr added. “There has been such a boom in the local economy.”
Karr noted that he would like to continue to grow Fagan and that his goals are the same as Comfort’s: profitable growth.
“We want to go in the same direction — improving the bottom line first,” he said. “Growth does not necessarily mean more profits.”
Karr added that Comfort has undergone some organizational changes that he expects will improve the company’s bottom line.
“Our new ceo [Bill Murdy] will help transition us from mergers and acquisitions to an operating company,” he said. “We need to draw on the strengths that each company brought to the table, too.
“We’ve restructured from seven to four regions and added business consultants to help in each region, bringing together resources that already exist in those areas.”
Karr said that he has always believed in the entrepreneurial spirit of hvacr contractors and thinks that both independents and consolidated businesses can compete effectively in the marketplace.
“I believe there will always be a place for people who start and build closely operated companies,” he added. “But this is a risky business and you need to know what is going on in each marketplace.
“We’re trying to enhance the entrepreneurial spirit with the backing of a national company. At some point you reach the threshold of what you want to share with others [in the industry]. At Comfort, we are always willing to share our ideas with our fellow operating companies.”
Karr added that it is “no secret that some Comfort companies have not performed well in the past,” but he sees hope for a comeback in the stock market.
“We think we’ll get the attention of Wall Street by showing steady, sustainable profitability,” he said.
Publication date: 09/18/2000