Strength in Numbers

Consolidation may be the growth strategy of the moment. Paul Verrochi is building an empire by knitting together a highly localized mom-and-pop industry, and he's creating a national juggernaut in the process

EMERGING ENTREPRENEUR
Emerging Entrepreneur: An individual whose company is founded on solid infrastructures that promise continued rapid growth

THE WINNER
Paul Verrochi
Company: American Medical

Response, Boston

Founded: 1992

1994 Revenues: $327 million

1994 Profits: $27 million

Number of employees: 6,210

Business: Nationwide ambulance service

THE RUNNERS-UP
Robert J. Laikin

Company: Brightpoint Inc., Indianapolis

Founded: 1989

1994 Revenues: $169 million

1994 Profits: $4.6 million

Number of employees: 75

Business: Distributor of cellular-phone equipment

Eric C. Cooper

Company: FORE Systems Inc., Warrendale, Pa.

Founded: 1990

1994 Revenues: $48 million

1994 Profits: $7.3 million

Number of employees: 284

Business: Manufacturer of high-speed computer networking products

For a guy who knew nothing about ambulances four years ago, Paul Verrochi has come a long way. Since launching American Medical Response (AMR), in August 1992, he has built the country's largest ambulance company, now with $550 million in annualized revenues, some 10,000 employees, and operations in 26 states. And fueled by a $100-million credit line and $90 million from a stock offering last spring, expansion is going full tilt.

One of the most striking parts of Verrochi's story is that he has built a big, successful business not once but three times. Each business has been a consolidation play, and Verrochi's basic approach -- a "Pac Man strategy," one analyst calls it -- hasn't changed much. He enters a fragmented industry, acquires the best companies available, and knits them together to gain operating synergies and economies of scale. Over 24 years he and his longtime partner, accountant Dominic Puopolo, have engineered more than 150 deals.

Verrochi's entrepreneurial bug bit him early. In 1971, fresh out of the Merchant Marine Academy, he started a building-maintenance business. "My mother was appalled," he recalls. "Here I was -- a college graduate -- scrubbing toilets." He grew that company to revenues of $18 million, with 10,000 employees in six states, and then sold out to a British company. During a three-year earn-out, sales soared to $120 million as Verrochi scarfed up cleaning services from New England to Atlanta.

Act 2 was an asbestos-removal outfit called American Environmental Group. Starting with three merged companies and $8 million in sales, Verrochi took the business to $35 million in three years. He stayed on for two years after he sold it to Allwaste, a big public company, buying 15 more companies and building revenues to $106 million.

At 46 Verrochi is into his third and possibly final entrepreneurial act, with AMR, based in Boston. "I've already made enough money," he says. Not that he's complacent. As chairman, CEO, and development honcho, he's on the road several days a week, focused on dominating an industry projected to hit $10 billion by the year 2000.

The ambulance business wasn't even on Verrochi's radar screen in the fall of 1991, when he and Puopolo leased office space in Boston and cast about for a new consolidation candidate. When their banker suggested ambulances, Verrochi was intrigued. "I discovered there were 2,200 private companies in the field, mostly mom-and-pop operations," he says. "Some had consolidated regionally, but nobody had gone public, and venture capitalists were nowhere in sight, so it hadn't been picked over. It was undiscovered, which made it perfect for us."

With help from the industry's top consultant, Verrochi pulled together four top-notch ambulance operators -- two in California and one each in Delaware and Connecticut, with combined revenues of $96 million -- and melded them into AMR in August 1992. He and Puopolo spent $2 million to lay the legal and accounting groundwork and then financed the deal as an initial public offering on the New York Stock Exchange, raising $23.7 million. "That was the first time it had ever been done on that exchange, a consolidation like this, so it was classic," Verrochi says.

Since then Verrochi has put some 50 companies under AMR's roof. "Paul has brought this industry of age," says Earl Riggs, whose $55-million operation in the San Francisco Bay area was the largest of the founding four. "I'd been buying small companies around me for years, to get bigger and more profitable. I thought the industry needed to do that on a larger scale, and Paul's vision was national."

Verrochi's company-building strategy rests on several planks:

Market dominance. Verrochi opens a new territory by acquiring its strongest player -- his "beachhead" -- which is usually a company in the $7-million-to- $20-million range, although recently he bought Ambulance Systems of America, which is, at $80 million, New England's largest operator. He's picky, preferring companies that have been in business at least 20 years and have sound management, deep community roots, and dedication to quality service. And he looks for operators "whose egos are in check," he says, "so they'll be good partners." By and large, the operators stay at their posts, running the beachheads as staging grounds for the acquisition of smaller companies in the region. By financing the deals with a 50-50 combination of cash and restricted stock (the new partners can't sell their shares for two years), Verrochi gives his partners an incentive to help build the business. If AMR's stock price goes up -- and it's more than tripled since 1992 -- they reap the rewards. "All entrepreneurs want an exit strategy," Verrochi says. "This gives them a chance to take some money off the table and stay in the game. We take over the banking, which has consumed lots of their time, and insurance, and let them focus on building a region. The idea is to funnel more business through that beachhead chute. We bought a $7-million company in Mississippi, for example, and today it's doing $40 million. It bought up Monroe, La.; New Orleans; Jackson, Miss. -- gobbled up the whole area."

AMR corporate headquarters, in Boston, with a lean group of 25 employees, handles due-diligence chores for each acquisition, puts a price tag on the deal, and funds it, but it's the job of the beachhead operator to find candidates. Verrochi himself explores the character issue. "When you buy a company, you are taking on a partner," he explains. "You have to get inside each other's heads to make sure this will work on a personal level. I want to break bread with them, so I invite them to my house for a few days. I want my wife to meet them, because sometimes I get too caught up in the money side. She looks at the protection side -- she doesn't want me to get hurt. They see the kids, see them act up.