Telemarketer Ends Public Trading
In September, the teleservices outsourcer filed a Form 15 with the Securities and Exchange Commission, withdrawing its registration and ending the trading of its stock on public exchanges. Private trades by current ACI stockholders, who hold onto their shares, still are allowed, but the company no longer is required to file public financial statements.
That's not to say ACI is out of business. The company still operates six call centers, and in August, in its last quarterly filing, ACI reported revenue of more than $7 million for the second quarter of 2003.
However, the report indicates the company was facing an operating loss of $220,000 for the quarter and that concerns existed about the future based on government regulation, competition and a dependence on a few key clients for the bulk of ACI's revenue. ACI, along with the entire teleservices industry, had been undergoing a bust period since September 2001 and had sold many of its assets to try to shrink the company to a more manageable size.
It was in this environment that the company's founders, CEO Rick Diamond and president Gary Cohen, decided that the cost of staying public -- more than $100,000 yearly for filing and accounting, with costs rising due to new, stricter accounting rules -- no longer made sense.
"It's hard to justify spending more money to stay public when you have to let people go," Diamond said. "We can't afford to keep people but we can afford to do filing?"
ACI, Minneapolis, was one of many teleservices outsourcers, including APAC, Aegis, RMH Teleservices, Telespectrum and West, that went public in the mid-1990s, lured by the prospect of new capital and the potential for explosive growth. A notable exception was DialAmerica, the nation's largest privately held teleservices outsourcer.
Many of those companies experienced rapid growth as the telemarketing sector boomed along with the flood of investment dollars that accompanied the advent of e-commerce. Many found themselves overextended later when the boom ended.
RMH last month became part of the NCO Group in a merger. Aegis had agreed to an acquisition by Allserve Systems, but in November reversed and decided to stay public, selling 80 percent of its common stock to Deutsche Bank and the Essar Group in order to pay off its debts. Telespectrum's call center empire has downsized and the company has undergone leadership changes in the past few years, though it has promised a rebound and recently hired former CapitalOne senior vice president Michael Shrader as president.
The seeds of trouble were planted even before the Internet bubble burst, said Art Schoeller, an industry analyst with The Yankee Group, Boston. The teleservices industry already had overbuilt call centers prior to the mid-1990s, and the problem worsened during the boom.
"A lot of these companies had IPO strategies that kicked in as the bubble was expanding so they were able to get high valuations," Schoeller said. "Unfortunately, the fundamental overcapacity issue was not factored in, so even during the height of the bubble we were experiencing a downturn in this sector with consolidations, et cetera."
Entrepreneurs started many of today's teleservices agencies from scratch, and they are used to making seat-of-their-pants decisions, said Sandy Pernick, an industry veteran and Chicago-based consultant. Their entrepreneurial personalities clashed in some cases with the corporate mindset and the rigors of public accounting practices.
"You're not free to wheel and deal in the same way," Pernick said.
Many members of the industry think teleservices is better off for losing its overcapacity. Analysts cite efforts to diversify the client base and mix inbound and outbound work, and providers have looked to far-shore sites for cost-cutting opportunities.
"Are we healthier now?" Schoeller said. "Yes, I would say so, but there is still some shakeout remaining, and new firms entering."
ACI's story might be considered typical of today's teleservices outsourcers. In 1987, Diamond and his partner Cohen started ACI in the back half of a storage closet in a building owned by Diamond's father, each with a $2,000 investment.
Diamond and Cohen, neither of whom had education or experience in telemarketing, worked the phones on their own at first. When they needed more staff, they cajoled their then-girlfriends, later their wives, into making calls, and then hired help.
Both men had friends involved in developing automated processing systems who introduced them to predictive dialing. Diamond said he and Cohen were among the first to recognize the potential of predictive dialers to create revolutionary efficiencies in call centers, and ACI's growth soared correspondingly. From its debut to 1995, ACI's annual revenue jumped from nothing to $6 million.
"It wasn't because Gary and I were any smarter," Diamond said. "The system was just so productive."
In 1996, investment bankers approached ACI offering the prospect of millions in capital if the company went public. They promised ACI could raise $7 million on just 25 percent of the company's equity, an offer that proved too tempting to refuse.
"The window was wide open on IPOs," Diamond said. "The money was flying freely."
ACI's revenue began increasing 50 percent a year, to $10 million in 1996, $15 million in 1997 and, by the end of 2001, $30 million. The stock price peaked at $6.50 per share.
ACI added call centers in Midwestern rural communities and Canada and acquired Britcom, Encyclopaedia Britannica's former teleservices unit, reaching a peak of 11 call centers. Economic incentives offered by government agencies helped fund call center openings. But in September 2001, the bottom fell out on the sector.
Diamond said he doesn't blame the Sept. 11 attacks for his company's troubles. Still, in September 2001 ACI's call volumes dropped by half because of cutbacks in the telecommunications industry, the heart of ACI's client base, forcing the company to begin cutting costs to reduce its overcapacity.
ACI cut five facilities, in some cases selling them for $10,000, on assets worth $1 million to $2 million, in exchange for a promise from the new owners that employees would be allowed to keep their jobs for at least a year, Diamond said. The company stock price reached its nadir at around 7 cents.
Nevertheless, Diamond said he remains positive about the company and notes that ACI's stock price clearly doesn't reflect the company's value. Its annual revenue was on pace to exceed $25 million this year, according to the August financial report.
Despite the roller coaster ride since 1996, Diamond said he doesn't regret taking the company public. Diamond said he still thinks that ACI's IPO experience was an overall positive and that he even would consider going public again if the opportunity ever allowed.
The sudden windfall of public money was not to blame for overbuilding of call centers by the industry, Diamond said. That likely would have happened even without the IPO boom as aggressive industry executives sought to keep pace with the booming economy.
"I think the extra money made it easier," he said. "But I don't think decisions were made just because of the public marketplace."