Contractor Buys Business Back From Consolidator

November 1, 2002
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LANSING, MI — Back in 1997, during a period marked by numerous acquisitions of contracting firms by publicly traded consolidation groups, Gary Doty saw a good exit strategy for leaving the HVACR service business — at a very handsome selling price.

Group Maintenance America Corp. (GroupMAC) came calling, and Doty became a happy seller of his business, A-1 Mechanical. He stayed on as president of the Lansing, MI, company to run it for GroupMAC. In fact, Doty and his wife Peggy signed a three-year agreement to stay on and run the company. When the contract expired, they renewed the agreement.

Over the years, GroupMAC merged with Building One Service Corp. to form Encompass Services Corp. Doty continued as president of the Lansing unit, and he was named entrepreneur of the year by Greater Lansing Business Monthly in 1999.

During that time period, another GroupMAC company in the Lansing area merged with A-1. The other company specialized in new construction.

On Sept. 30 of this year, Doty had purchased his old company back from Encompass and was back in the HVACR business as an independent owner.

Why did Doty reverse his exit strategy and return to the rigors of owning an HVACR business? The News wanted to find out the answers, and Doty obliged by telling us his reasons.

NOT THE PLAN AT FIRST

“We were plugging right along and were approached by some former owners of Airtron [who also sold to GroupMAC] about going in on a buyback of A-1,” said Doty. “The first response from Peggy and myself was ‘no.’

“After giving it some more thought, we decided to approach Encompass with the idea. They said they were interested in selling, but it would have to be in a short time frame.” Doty believed the urgency may have been necessitated by tax purposes.

After the sale, Encompass announced that it had submitted plans to restructure its debt under Chapter 11. (See The News, Oct. 21, page 1.) Doty said he was aware of the restructuring plan, although it hadn’t been formally announced before the sale.

“Everyone at Encompass was working very hard to turn the ship around,” Doty said. “After we closed the deal, it became apparent how bad the situation was.”

THE DEAL IS SEALED

“Peggy and I were reluctant to get back into the business as 100% owners because of our desire for an exit strategy. With a partner [former Airtron owner Stephen Becker], this gave us another opportunity in the future to exit the business.”

Becker is the former owner of Airtron Heating and Air Conditioning in Indianapolis. He will be A-1’s CEO. The company employs 50 workers and lists a base of 20,000 customers.

Details of the sale were not released.

Now that Encompass plans to restructure, does Becker think there will be more instances of former owners buying their businesses back?

“I really don’t know,” he said. “We are not part of Encompass anymore, so I can’t speak for them.”

“I’ve heard that some companies have been sold back or the potential is there for a sell-back,” stated Doty.

“The value proposition that consolidators have is not working very well, and, in general, the industry is seeing the same things as the funeral home business, where a lot of people were consolidated and are now buying back in,” said Becker. “Consolidation has not worked out real well for our industry.”

Publication date: 11/04/2002

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