"It's a family thing," he says. "By the end, we know if it's a good fit. If anything feels wrong, we back off from the deal, and that's why we don't make many mistakes."
So far, the beachhead strategy has worked, giving AMR strongholds in California, Michigan, New England, North Carolina, Ohio, Oregon, Pennsylvania, Florida, Colorado, Illinois, Mississippi, Washington State, Oklahoma, and Hawaii.
Operating synergies. Each region runs as a separately incorporated business and cuts costs by centralizing such common functions as accounting, payroll, human resources, and purchasing. To get an idea of what AMR does systemwide, consider how American Medical Response of Connecticut Inc., the $15-million beachhead in New Haven, bought a $5-million company in nearby Bridgeport.
As Verrochi describes it, "They both had dispatch centers, chief financial officers, and safety and risk-management people. We made New Haven the hub. The old CEO in Bridgeport left, the CFO we didn't need, and communications and vehicle maintenance all went to New Haven. We took a business with $5 million in revenues and $200,000 in pretax profits, and raised profits to $800,000 just by eliminating redundancies. The goal is to lower the cost per trip. In today's health-care environment, you can't raise prices. Contracts are won and retained by companies that deliver the highest quality at the lowest cost."
Technology. AMR's municipal contracts for 911-call response require that its ambulances be at the scene within eight minutes at least 90% of the time, so they must always be ready to roll. A fully equipped ambulance costs about $100,000, and labor adds another $300,000 a year to each ambulance's operating budget -- a pair of paramedics is always on board. (The cost of an ambulance ride, from $250 to $750 depending on the location, is billed to a private or public insurer or to the passenger.) Collectively, AMR's 1,700 ambulances represent a huge cost center, and Verrochi is attacking it with high technology.
Earl Riggs, the California operator, already had a satellite-based dispatch system in place when he joined AMR and consolidated operations with a partner company in the Silicon Valley area. The two companies had 100 ambulances between them. But the global-positioning satellite system (GPS) enabled the new AMR West to cover the same territory with 86 vehicles, for a labor-cost savings of $4.2 million a year.
"Before, dispatchers would run the ambulances by zones," Riggs explains. "The GPS pinpoints the street locations of the ambulances every 14 seconds and updates the dispatch center accordingly. You can actually watch on the wall map as the ambulances move along the freeway, and the computer-aided dispatch automatically calculates travel times based on traffic patterns. Now we can send the ambulances closest to the call -- not in distance, but in time. So we're able to utilize them more efficiently."
Verrochi is capitalizing on GPS technology to trim the ambulance fleet companywide, but these are multimillion-dollar systems, and cost effectiveness demands critical mass. "We went into Denver and bought four companies, which gave us the heft to afford a GPS system," he says. "When you have 80 ambulances and can eliminate 10 or 15 of them, you can start paying for it." For now, only California and Denver have GPS capability, but AMR units in Chicago, Philadelphia, Mississippi, and Connecticut are slated for installations soon.
Since the advent of AMR, three other ambulance companies have gone public to emulate its strategy. But AMR is the behemoth in the field, and Verrochi is gunning for more. "There were 2,200 private companies when we started, and there are 2,000 left -- we have only 50," he says. "We have lots of room to grow."
CONSOLIDATED INCOME
Consolidation of fragmented industries is now a major trend, as witnessed by this year's winner in the Emerging Entrepreneur of the Year category. But it's nothing new. Consider that in 1898 there were more than 2,000 automobile manufacturers (actually, buckboard wagon manufacturers who were incorporating motors into their products) in the United States. "The life cycle of entrepreneurial firms is not that different today than it was 100 years ago," observes Tom O'Malia, director of the entrepreneur program at the University of Southern California. "What's new today is the consolidation of more mundane businesses."
Indeed, the Chicago venture-capital firm of Golder, Thoma, Cressey, Rauner Inc. (GTCR) is engaged in the consolidation of some 25 industries, including golf courses, rock quarries, temp agencies, funeral homes, security guards, and even coin-operated laundries in apartment buildings. "When you combine companies, you get true synergies and savings. By bringing together products and services, you also build market power. And also, of course, you can leverage good people and good systems through companies that are acquired," explains Bryan Cressey, a GTCR principal.
For the individual entrepreneur in a consolidating field, it's decision time. "You can either be part of it and use it as an opportunity to cash in your chips, or you can fight it and become more of a lifestyle business," O'Malia says. "If you fight, you are going to have to compete on a different level as consolidation goes through. You'll have to be in the service business instead of the product-delivery business, and you must add value."
Cressey, who has been financing consolidations since the 1970s (GTCR has about $400 million invested in such ventures), recommends that entrepreneurs first examine the consolidation's rationale. "If there are real savings and economies, then that probably will continue," he says. "But if benefits don't materialize -- and they don't always -- it will be status quo for a long time. The downside risk for entrepreneurs who hold out against smart consolidations depends on how good they are. If they are very good managers, there's not a big downside. But if they're in the middle of the pack, the consolidation wave of lower costs could roll over them."
