Encompass Services: Striving for Synergy

September 8, 2000
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HOUSTON, TX — Earlier this year, one of the original hvacr consolidators changed the course of its future, merging with a similar operating company. This move effectively put another nail in the coffin of the “consolidation phase” of contractor acquisitions.

Group Maintenance America Corp., formed in 1997 to consolidate contractors in the commercial and industrial mechanical trades, merged with Building One Services Corporation to form En-compass Services Corp. According to Encompass ceo Joe Ivey, the union made sense.

“Both companies had built very complementary systems across the country,” said the former ceo of Building One. “When we put them together, the fit was almost perfect to become a national facilities manager.

“Since the merger, we have worked very hard to integrate these services toward going to market as a national player. Integration is work in progress. It’s one thing to get every business under one name and it’s another to get them all to work as a unified company.”



INTERNAL GROWTH, MARKET EXPANSION

Encompass does have a residential group which focuses on hvacr and plumbing services, generating 10% of its revenues from 21 “business units.” The remainder of the revenues come from 38 “mechanical units,” which concentrate on commercial construction and service. Both groups have combined revenue of $832 million through the first six months of 2000. Total revenues from 1999 were $1.5 billion.

“Commercial mechanical and electrical comprise about two-thirds of our business; so that is where our focus is, although our residential business continues to grow well internally,” said Ivey.

Like some of the other original consolidators, Encompass is looking more toward internal growth and expansion of its market base. Those two goals don’t necessarily equate to an immediate need to acquire more businesses.

“We are functioning as an operating business,” said Ivey. “We are looking to expand our business but not necessarily through acquisitions. We have an operation-driven strategy, not an acquisition-driven one.”

Encompass is looking at major markets in the U.S. where it is not represented. The idea here is to begin startup businesses, as opposed to acquiring existing ones.

“We will look at the top 100 markets and in those that we do not have a presence, we’ll decide on the best strategy to enter that market,” said Ivey.



FORMER OWNERS ARE BEST PEOPLE

In its current markets, Encompass has been able to utilize the leadership of former owners to grow the business. Ivey believes the former owners make up some of the most valuable people in the company.

“Encompass prefers to have the best possible people available to run these businesses,” Ivey said. “And in the majority of the cases, these people are the former owners.”

With the shift from consolidation to operation, Encompass has put less emphasis on going out and finding new businesses to acquire. As Ivey puts it, the company’s primary strategy is “an internal growth strategy.”

“We would like to grow our revenues 8% to 12% each year and grow our earnings at a faster rate,” he said. “We think we can do that by having an internal focus.”

Ivey said there may be a few more acquisitions by the end of the year, but added, “we cover the map awfully well.”

“We have strong assets in major markets all over the U.S.,” he said, “so we don’t have a crying need to acquire a business in a particular location.”



SETTLING IN

Encompass seems to have “mirrored” the model of a company that starts out in the acquisition stage and eventually settles in the operations phase.

“We did fewer acquisitions in 1999 than 1998,” he said. “This year we’ve done very few acquisitions, possibly two or three. We don’t have any acquisition officers in the field.

“We still get one or two contacts a week from owners wishing to sell but this is just not something we’re pursuing now.”

Ivey likes to think of his company as having two great strengths: the quality of the assets of each business unit across the country and their strength in local markets; and the ability of each unit to work together as a national business.

He likes what he sees so far and wants to keep the hvacr service industry an attractive one.

“We need to promote the positive side of our business,” he said. “We do have a dynamic industry.”

Publication date: 09/11/2000

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