Impact, Others In One-Stop Shop Expects Results
"Wall Street experts project that Compass' revenue will be in excess of $24 million for second quarter 1998," said Deborah Brown, director of marketing, Impact. This represents an increase of more than 10 percent over pro forma revenues for the same period last year. Analysts also project strong earnings of 14 cents a share for the second quarter.
Impact, which joined Mail Box, Dallas; NCMC, Baltimore; Bomar, Atlanta; and Mid-Continent, Rolling Meadows, IL, to form New York-based Compass in an IPO-financed roll-up in February, is encouraged by the results. "It proves that so far, synergy exists between the merged companies," said Brown.
Compass International provides the full sales cycle of outsourced business services to both public and private end-users. The company, together with other founding members, provides teleservices, direct mail, order fulfillment, billing and accounts receivable management services, as well as telephonic check drafting services through its proprietary Accelerated Payment Systems (APS).
On a pro forma combined basis, the founding companies' revenues increased from $34.2 million in 1992 to $87.2 million in 1997, representing a compound annual growth rate of 20.6 percent. The aggregate consideration paid by Compass in the acquisitions was approximately $17.5 million in cash and 5,435, 691 shares of common stock. After a quick run-up in stock price to 16.50 from the IPO price of $10.50, the price has settled around the $12 range.
"Compass is the only roll-up in the industry that has publicly married nontraditional direct marketing businesses (collections and receivables management) with traditional direct marketing businesses (teleservices and direct mail)," said Mike Petsky, managing director, Gruppo, Levey & Capell Inc., New York, an investment banking firm. "They have created synergy where traditional direct marketing techniques are applied to nontraditional direct marketing businesses. Both are services that corporations are increasingly outsourcing."
"The major danger of roll-ups for investors is the lack of cohesiveness in the business units that are joined together," said Laurie Kolbeins, Managing Director, Texada Capital Corp., Wayne, PA, an investment banking firm. "The on-going reorganization of TeleSpectrum Worldwide reflects the follow-up change that accompanies a poorly constructed roll-up. In this case, however, Compass appears to have better cohesiveness and it has been priced in the market to reflect industry median valuations.
"Further, key management was recruited in advance and had an influence on the choice of business units being acquired," Kolbeins added.
Chief executors Mahmud U. Haq and Michael J. Cunningham, who were recruited by Compass financier BGL Management Company LLC, bring with them experience from American Express. They are responsible for strategic planning, resource allocation, capital financing, financial reporting, marketing efforts and human resources. They will work closely with the founding companies to coordinate, integrate and expand their service offerings. Founding company presidents make day-to-day operating decisions and are primarily responsible for the operations of their respective companies.
"Impact in its core competency has and will not change," said Edward A. DuCoin, co-president, Impact. But its situation is improved. "We are able to offer additional services and enhance our relationship with our clients," said DuCoin. "We can provide companies with access to technologies that they might not be currently utilizing, as well as increased opportunities through cross selling.
"Companies can reduce their operating costs by outsourcing non-strategic functions to vendors for whom these functions are core competencies," he said.
According to DuCoin, a typical client would approach his company with, say, 100,000 brochures wanting inbound teleservices. They would also, however, want to purchase a list and acquire mailing services. Where the company once gave referrals, said DuCoin, the situation has changed: "We can now offer a full turnkey system with expertise for each function so that clients will not have diluted results."
"The company is taking a big jump," said Stephen Fagan, vp, sales and marketing, Impact. "Impact was good, but it needed to go to another level."
"Impact has always been a growth-oriented service agency at the top of its field," said DuCoin, "However, the opportunity to rise to another level as an integral part of Compass International Services Corporation offers great potential for our company to be a key player in the outsourcing arena."
Compass has signed agreements to purchase Delivery Verifications Service Inc., Wilmington, DE, a privately held provider of letter-based accounts receivable collection services and Maher & Associates Mailing Services Inc., Dallas, a privately held provider of mail. The approximate aggregate of $1.9 million paid to DVS shareholders consists of cash and notes, and the $7.3 million paid to Maher's shareholders, consisting of cash and Compass stock, are based on valuations consistent with the corporate development plan. For the 12-month period ended March 31, the aggregate revenues of DVS and Maher exceeded $8 million.
A definitive agreement has been reached to acquire MetroWebb, Inc., Dallas, and MWI Laser Group Inc., privately held providers of direct mail printing services and are affiliated through common ownership. The approximate aggregate transaction value of $12.6 million will be paid to MetroWebb and MWI Laser shareholders in the form of cash, Compass stock and a note.