AHL Services, Inc.

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AHL Services, Inc.

3353 Peachtree Road N.E.
Suite 1120, North Tower
Atlanta, Georgia 30326
U.S.A.
(404)267-2222
Fax: (404) 267-2231
Web site: http://www.ahls.com

Public Company
Incorporated: 1979
Employees: 16,282
Sales: $276 million (1997)
Stock Exchanges: NASDAQ
Ticker Symbol: AHLS
SICs: 7363 Help Supply Services; 4111 Local & Suburban Transit; 7389 Business Services, Not Elsewhere Classified

AHL Services, Inc. provides contract staffing and management of labor-intensive operational support functions such as security, baggage handling, and transportation, on an outsourced basis throughout the United States and Europe. The company, which had global sales of $276 million in 1997, focuses on recruiting, hiring, training, motivating, and managing the large numbers of personnel required for its clients’ support services. A primary focus is in services for the aviation industry, which include pre-departure screening, passenger profiling, and other passenger services. AHL’s non-aviation clients include Federal Express, America On-Line, Georgia Power, BellSouth, Nike, and Motorola. Through its 83 offices in the United States, along with 28 offices in six European countries, AHL is a multinational corporation with a particularly strong presence in the United Kingdom, which alone accounted for nearly one-quarter of its revenues in 1997. In the latter year, its first as a public company, AHL had some 630 service contracts, mostly with Fortune 1,000 companies.

A Dozen Quiet Years in the 1980s

AHL Services, Inc. began life in 1979, when founder Frank Argenbright Jr. created it as a replacement for Argenbright Holdings Ltd. The latter ultimately became a subsidiary of AHL. Argenbright, who would remain chairman and CEO of AHL Services in the late 1990s, was already building a successful security agency under the Argenbright name; with AHL he expanded the company’s offerings. The key to expansion emerged from the company’s core specialty: Argenbright provided security to airlines, and it was relatively easy to make a lateral move into cargo handling and shuttle bus services for the airlines as well.

In a 1998 listing of its top clients, AHL showed two that had been with it for 17 years, almost to the time of the company’s founding: Delta Airlines and Northwest Airlines. The other companies, and the lengths of their relationships with AHL, suggested the successive layers of growth by which the company had expanded over the preceding years. Next longest was Federal Express, to whom AHL had contracted its services for 12 years, or since the late 1980s; then United Airlines (nine years); BMW and Reader’s Digest, with eight years apiece; British Airways, Ford, and Publishers’ Clearing House, all with seven years; and Mattel, with which AHL had been working for just a year.

Clearly, a large portion of the company’s growth had begun in the early 1990s; during its first dozen years, AHL’s expansion proceeded quietly. Initially, it offered, along with security, a polygraph service; then in the early 1980s the company began providing shuttle bus services for Delta at the latter’s headquarters in Atlanta. A decade later AHL was ready for a big push: thus as Tom Walker observed in the Atlanta Constitution, “it took 14 years for AHL Services to reach $100 million in annual revenue, but only three more to top $200 million.”

Turning Point in the Early 1990s

According to Celeste Bottorff, AHL Services’ vice-president of marketing and strategic planning, the firm reached a “turning point” in 1995. It was then, wrote Evelina Shmukler in the Atlanta Business Chronicle, that “it decided it would move from being a small company to a large one. AHL has recruited all its top executives since 1995.”

To a degree, however, the turning point may have begun earlier, in 1992. That was the year when the company, its revenues having reached $80 million, began to expand internationally by purchasing the passenger shuttle service operations of British Airways at London’s Heathrow Airport. To facilitate that acquisition, in March 1992 AHL had formed ADI, which it has since used as a platform for expansion in Europe. The second move toward international growth occurred in August 1993, when ADI bought Express Baggage Reclaim Services Limited, which provided lost baggage delivery and replacement services in Great Britain.

Also in 1992, AHL began providing profiling services in Europe. According to the company’s own information, “Passenger profiling seeks to identify a potential threat”—e.g., of hijacking or other airborne security dangers—“before it materializes by means of interviewing, document verification, and behavioral analysis. This procedure results in the classification of the vast majority of passengers as low risk, thereby enabling more scrutiny to be focused on higher risk passengers.” With some 233 employees dedicated to profiling, this has become a specialty with AHL, which maintains that it “would be well-positioned to quickly implement profiling procedures for its U.S. clients” if the Federal Aviation Administration (FAA) mandates this security procedure for flights within the United States.

The Beginnings of Explosive Growth in the Mid-1990s

Starting in 1993, the year when receipts first topped $100 million, the company began to build its top layer of management, and this was in place, in large part, by the middle of the decade. Prominent among the key management figures AHL took on during the early- to mid-1990s was Frank Mellett, co-chief executive officer (CEO) of the company and former senior vice-president of Coca-Cola, who joined in 1994. In 1993, A. Trevor Warburton, former senior vice-president of Ground Services for Ogden Aviation Services in England, became managing director of the ADI Group Limited. Likewise Bottorff, the company’s leading female executive, joined in 1996 after serving with Holiday Inn Worldwide as director of strategic planning and the Atlanta Journal Constitution as marketing director. Tom Maraño, who like Mellett came from Coca-Cola, became president and chief operating officer (COO) of Argenbright Holdings Limited, the holding company for the company’s U.S. operations, in mid-1995.

In the mid-1990s AHL began to expand through acquisitions, but before it did so, it sold off one holding: in October 1995, the company divested itself of Intergram, Inc., a wholly owned subsidiary of Argenbright that provided drug testing services, for $1.3 million. AHL in 1996 entered into a joint venture with British Airways whereby it would provide a variety of services at the latter’s Nice, France operation, including passenger and baggage check-in.

July of 1996 saw the third in a series of acquisitions that had begun with the purchase of British Airways’ Heathrow passenger service in 1992. The company was Intersec, Inc., which AHL acquired for $2.5 million in cash and $1.155 million in notes payable. Intersec provides access control services—i.e., personnel and equipment to protect against entry by unauthorized persons—for businesses in Washington, D.C. and surrounding areas. This third corporate purchase would be followed by a rapid-fire series of acquisitions in 1997.

A Series of Acquisitions in 1997 and 1998

AHL went public in mid-1997 and quickly established itself as a powerful market force. “AHL Services, Inc. is flying high,” wrote Zach Coleman in the Atlanta Business Chronicle that summer. “In the two-and-a-half months since the Atlanta-based airport services and security company went public, its stock has risen more than 70 percent and it has closed on almost as many acquisitions as it did in 17 years as a private company.” In May, the company commenced yet another involvement with British Airways, this time in a joint venture to purchase Executive Aircraft Services (EAS), a division of British Airways. EAS performs ground handling, passenger handling, and concierge services for large private executive aircraft. The licensing rules at Heathrow Airport prevented AHL from making an outright purchase, hence the joint venture, which was combined with an agency agreement whereby AHL kept the option to purchase the entire business if and when the licensing rules changed. AHL paid British Airways $2.8 million and agreed to pay more than $500,000 per year for three years if the new division performed to certain standards.

Also in May 1997, AHL bought the access control business of USA Security Systems, Inc., a New Jersey firm, for some $2.6 million in cash. It followed this up in September by acquiring Lloyd Creative Staffing of Chicago for $5 million in cash along with contingent consideration based on future operating results. A light industrial staffing company, Lloyd provides staff for warehouse “pick and pack,” along with other light industrial functions, in the Chicago area. During the following month AHL acquired Van Nuys, California-based RightSide Up, Inc., an order fulfillment firm that serves the entertainment industry, for more than $6 million. Finally, in December, the company closed out 1997 by adding Midwest Staffing Systems to its growing list of subsidiaries. Based in Chicago like Lloyd Creative Staffing, Midwest also provides staff for warehouse “pick and pack” and light industrial functions.

Company Perspectives:

By giving 110% we build business. By demanding 110% we build people.

The acquisitions just kept coming in 1998, and growth spread to the European continent. AHL purchased SES Staffing Solutions, a light industrial and warehouse company located in Maryland, in February, and in April bought the German firm of TUJA. July saw the conclusion of a $1.1 million purchase agreement for Gage Marketing Support Services Group, and in the following month AHL added its second German industrial staffing company, EMD. The latter purchase was its largest to that point: $42 million. Also in August, AHL announced that it intended to purchase Right Associates, a British industrial staffing company.

By any standard, AHL in the late 1990s experienced a dizzying rate of growth, but its expansion made sense in that each new area of expertise had the common factor of service. Thus the company’s statement of its Core Competency: “Professionally manage large workforces that perform non-core, repetitive, operational support tasks for clients, on a ’recurring’ contractual basis.” AHL now offered four lines of service, including what had once been its singular focus, Aviation Services. Under the latter heading comes pre-departure screening, passenger profiling, sky caps, wheelchair service for disabled passengers, cargo handling, and into-plane fueling: hence, as Mellett said in a 1998 interview with Jan Hopkins of Cable News Network Financial News (CNNFN), “We don’t fly airplanes. But we’ll do almost anything else for them.”

In addition to Airline Services, AHL offers Facility Support Services (access control, shuttle buses, commercial security); Operational Support Staffing Services (assembly, warehousing, shipping, electrical, and mechanical); and Marketing Execution and Fulfillment Services (consumer/trade fulfillment, e-commerce fulfillment, trade support, and customer service support). Just as it had rapidly broadened its focus from Aviation Services, so the company’s projections called for a diminished emphasis on aviation and increased attention to other lines. Whereas Aviation Services had made up 58 percent of its business in 1997, AHL projected that it would constitute 29 percent in 1998. Facility Support Services would decrease slightly, from 39 percent to 30 percent. Operational Support Services, on the other hand, would expand enormously, from three percent to 25 percent. But the greatest proportional expansion would occur in Marketing Execution and Fulfillment Services, which had not even been a part of AHL’s lines of service in 1997 but which the company’s leadership predicted would make up 16 percent of its business in 1998.

Describing AHL’s variety of services in the Constitution, Walker wrote: “Commerce would come to a halt without the rank-and-file workers who handle packages, load cargo, shuttle people from place to place by bus, and do a long list of other necessary chores. Theirs is the occupational stratum AHL Services has defined as its niche in the fast-growing field of outsourcing and contract staffing. And that’s just the reverse of what most competitors in the highly fragmented staffing business are doing.” As Mellett told Walker, most of AHL’s competitors were saying, “We are going into the information technology business.”

In his interview with CNNFN, the co-CEO expanded on the distinction between his company and other players in the temporary-services industry: “We are really not in the temporary kind of business. We’re in contract staffing and outsourcing. And that is really one of the points of distinction between us and other staffing companies. What we do is provide workforce management for large numbers of people, relatively low-skill jobs … repetitive kinds of things in the non-core elements of our clients’ business. But we do that on a contractual basis, a long-term basis with the average length of our contract about three years. So I guess, really, if you were looking for some help, for a receptionist for a day or a secretary for a week, you would not call us.”

The Growing Ranks of AHL

For many companies, the number of employees—with the concomitant payroll and benefits commitment—is a liability rather than an asset. Hence the urge toward downsizing that began in the 1980s. With a personnel services firm such as AHL, however, employees are indeed an asset, and the company proudly proclaims its growing numbers. Likewise it draws attention to its efforts at recruitment and retention in lines of work that are not known for long terms of service. This is certainly the case with the job of security guard, for which the median salary in the Atlanta metropolitan area in 1997 was $12,480, according to the U.S. Department of Labor. Bottorff pointed out to Gene Tharpe of the Atlanta Constitution that more and more women are being drawn to security guard jobs. This can be attributed to the decrease in the proportion of armed security positions, which is in turn explained by increased liability and insurance concerns that have led to such a decrease.

With the need to retain more competent and reliable people in such positions, AHL has had to maintain a competitive position in the labor market, a fact of which its leadership is keenly aware. According to the company’s annual report, “Historically, non-core support services workers have a high turnover rate. We work hard—and invest substantially—to recruit and keep people, and our efforts are rewarded. The Company has a relatively low turnover rate—approximately one-half that usually reported among large-volume, non-core work forces.”

As it continued to grow its ranks, AHL likewise expanded its holdings. Thus in October 1998 it entered into a definitive purchase agreement to acquire Unicco Security Services, an access control and security services company based in Chicago. The latter counts among its clients BASF Corporation, Bell Atlantic, and Yale University. Meanwhile, overseas expansion continued. AHL, which provides security for Federal Express at Subic Bay in the Philippines, clearly had its eye on Asian expansion. “We like the Pacific Basin,” Mellett told Walker. “If you look at the 21st century, that’s where the growth in aviation is going to be.” Argenbright told Walker, “I believe that in five years, 50 percent of AHL’s business will come from outside the United States.” He reinforced the Pacific Basin theme, saying, “We continue to explore for a partner in that area. The third priority would be Latin America.”

Principal Subsidiaries

Argenbright Holdings Limited; Argenbright, Inc.; RightSide Up; Lloyd Creative Staffing; Midwest Staffing; Argenbright Security, Inc.; Intersec USA Security; The ADI Group Limited (United Kingdom); ADI U.K. Limited (United Kingdom); Aviation Defence International (United Kingdom); Argenbright Motor Coach, Inc.; Argenbright Substance Testing, Inc.; IPS Training Institute, Inc.