American Reprographics Company

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American Reprographics Company

700 North Central Avenue, Suite 550
Glendale, California 91203
U.S.A.
Telephone: (818) 500-0225
Fax: (818) 500-0195
Web site: http://www.e-arc.com

Public Company
Incorporated: 1967 as Micro Device, Inc.
Employees: 3,410
Sales: $443.8 million (2004)
Stock Exchanges: New York
Ticker Symbol: ARP
NAIC: 323122 Prepress Services; 323110 Commercial Lithographic Printing; 323121 Tradebinding and Related Work

American Reprographics Company (ARC) is the largest reprographics company in the United States, providing document management services to architectural, engineering, and construction firms, as well as to companies involved in financial services, retail, entertainment, and food and hospitality. Reprographics services generally include digital management and reproduction of construction documents and other graphics-related material. ARC's proprietary "PlanWell" software is an Internet-based solution that enables architects, engineers, and other construction professionals to view plans and submit bids online. ARC sells PlanWell to its customers and licenses the software to independent reprographers. The company also operates "PEiR" (Profit and Education in Reprographics), a program that provides purchasing, technology, and educational material to other reprographers. ARC operates more than 180 reprographic centers in 141 cities in 30 states. The company also operates four service centers in the greater Toronto metropolitan area and one in Mexico City. ARC expands by acquiring small, local reprographics firms, typically retaining management and the name of the firms after they are acquired.

Origins

For more than 30 years, ARC's predecessor led a quiet, unassuming existence, never showing a sign of becoming the aggressive consolidator that later stood atop its industry. The dramatic change in purpose and strategy that transformed a modestly sized, locally oriented business into a national giant came after new owners and new management assumed control over the company. Sathiyamurthy "Mohan" Chandramohan and his childhood friend Kumarakulasingam "Suri" Suriyakumar were the individuals responsible for spearheading the transformation, two Sri Lankan natives who changed the face of the U.S. reprographics industry. Chandramohan came from a background in banking and retail, spending his professional career in Sri Lanka at the Hong Kong and Shanghai Banking Corporation before joining U-Save Auto Parts Stores in 1981, where he rose to the positions of chief operating officer and chief financial officer during a seven-year stay. Suriyakumar's Sri Lankan years were spent at Aitken Spence & Co. Ltd., a conglomerate that ranked as one of the country's five largest corporations. Although Aitken Spence's diverse business activities required Suriyakumar to work in several different capacities, the majority of his time was spent in shipping and freight-forwarding.

Before Chandramohan and Suriyakumar began their assault on the reprographics industry, the company they used to launch their assault operated as one of thousands of small reprographics firms populating the nation. ARC was founded as a sole proprietorship in 1960, beginning as a single storefront in Los Angeles that operated under the name Ford Graphics. In 1967, the company was dissolved and a new corporate structure was established, marking the birth of Micro Device, Inc., which continued to provide reprographics services under the Ford Graphics banner. Over the course of the next 20 years, Micro Device expanded, but not by much, adding another shop by the time Chandramohan joined the company in 1988 as president. Suriyakumar joined his friend the following year, accepting the post of vice-president. Suriyakumar's arrival coincided with the owner's decision to retire, which prompted the two Sri Lankans to acquire the company's assets. Micro Device, with two stores and $9 million in annual revenue in 1989, was much like the type of company Chandramohan and Suriyakumar would spend the next 15 years aggressively acquiring, with each acquisition representing a building block that eventually formed the industry's leader, ARC.

Although Micro Device increased in size by a factor of 75 during the 1990s, the acquisition campaign that delivered such startling growth did not begin immediately after Chandramohan and Suriyakumar acquired the company. Unfortunately for the two new owners, their purchase was completed just before recessive economic conditions settled in, scuttling any plans for expansion and placing a premium on squeezing any profit they could out of the business. The two partners later put a positive spin on their first years in control, claiming that the bleak economic conditions gave them time to learn the reprographics business. Once the economic climate improved, the new owners began to make their first acquisitions, using what Suriyakumar, in a February 2, 2001 interview with the San Francisco Business Times called "very creative financing."

Micro Device's acquisitive activity, which intensified later in the decade under the ARC name, was designed to consolidate a highly fragmented industry. According to the International Reprographics Association, the market generated $5 billion in annual revenues, a total collected by roughly 3,000 relatively small reprographics firms. A typical firm employed 20 to 25 workers, generated $1.5 million in annual revenue, and was privately owned, usually by the founders of the firm. Chandramohan and Suriyakumar planned to build on their base in California and create the industry's first nationwide competitor, a company that would serve as an umbrella organization for the scores of small firms dotting the country, giving each member of their family the benefits of operating within a greater whole and access to technology unique to their company. Almost without exception, Chandramohan and Suriyakumar retained the management of each acquired company and kept the name of the firm, cobbling together a collection of locally branded firms that to the unknowing eye appeared to be independent.

ARC Launching an Aggressive Acquisition Campaign in 1997

After establishing a small base of operations with "creative financing," Chandramohan and Suriyakumar turned to traditional bank loans to fund the expansion of their company. The scope of their acquisition campaign widened considerably after they refinanced the company in 1997, a recapitalization effort that involved changing the corporate structure of the company to a California limited liability company, which took the name American Reprographics Holdings, LLC. The change in structure and name coincided with a $15 million investment by TZS Capital, which gave Chandramohan and Suriyakumar the capital to accelerate their acquisition program. After the deal was completed, Chandramohan and Suriyakumar owned 50 percent of the company, while outside investors owned the other half.

After the investment by TZS, the company began to record strident growth. By 1998, the company's annual revenues had increased to $140 million, a total that leaped to $223 million in 1999 when the company completed 20 separate acquisitions, half the number of acquisitions completed during the 1990s. The supply of capital available for acquisitions received another infusion in February 2000, when the Chicago-based investment firm Code Hennessy & Simmons LLC acquired TZS Capital's 50 percent stake. Code Hennessy, which managed more than $1 billion in investments, provided Chandramohan and Suriyakumar with $82.5 million to continue their buying spree. After completing 20 acquisitions in 1999, they purchased 14 reprographic firms in 2000, including their largest acquisition up to that point, Houston, Texas-based Ridgway's Inc. in September 2000. Ridgway's, which was acquired for $100 million, was the second largest reprographics company in the country with $70 million in annual revenue and 22 locations in the southern and eastern United States.

The acquisition of Ridgway's represented a major step toward national dominance, bringing ARC's closest rival into its network, but the acquisition was an anomaly because of its size. The company's growing national presence was built almost entirely by purchasing reprographics firms with between $3 million and $5 million in annual revenues, companies that were a fraction of Ridgway's' size. "The companies we acquire have a stranglehold on the local market," Suriyakumar explained in a February 2, 2001 interview with the San Francisco Business Times. "And they are very strong in that way because we chose companies that have built up customer bases," he added. "What we do is figure out a way to let them operate as separate companies under their current ownership, so that the strong locality does not suffer under the larger corporate identity." A more typical example of the company's acquisition strategy was a firm purchased one month after Suriyakumar spoke with the San Francisco Business Times. The company acquired Rhode Island Blueprint, a supplier of reprographics products and services with 17 employees and $3 million in revenues. Rhode Island Blueprint's president and founder, Peter Morn, reacted to the deal in much the same way other owners and operators responded after joining the ARC network. "There won't be any changes to the operation or employees," he said. "Joining ARC opens new competitive technological advantages for us." For Rhode Island Blueprint, as it was for the dozens of firms gathering under the ARC umbrella, it was business as usual after joining the network, but with benefits of being part of a national organization.

Company Perspectives:

Our objective is to continue to strengthen our competitive position as the preferred provider of business-to-business document management, document distribution and logistics, and print-on-demand services.

By the time Rhode Island Blueprint was acquired, Chandramohan and Suriyakumar were striving to reach $500 million in sales by the end of the year. They fell short of the $500 million mark, and failed to reach the financial goal for the next three years, but the stature of the company was no less impressive. They spent $32.6 million on acquiring 14 reprographics firms in 2001, helping to lift revenues to $420 million. By this point, the firms that were joining the company were benefiting from more than just ARC's financial resources and managerial support. In June 2000, the company launched PlanWell, the "technological advantage" Peter Morn referred to after becoming part of the ARC family. PlanWell was web-based software that offered a "planroom-to-print" solution to the firms operating under ARC's control, enabling architects, engineers, and other construction professionals to view plans, submit bids, and purchase reprographics services via the Internet. Initially, PlanWell technology was only available to firms operating under the ARC umbrella, but in 2003 the company began licensing the technology to independent reprographers, the same year the company started PEiR (Profit and Education in Reprographics). PEiR was a trade organization through which the company charged membership fees and provided purchasing, technology, and educational benefits to reprographers.

ARC inched toward the $500 million in annual sales as it entered the mid-2000s, continuing to add reprographics firms to its ever expanding network. After spending $34.4 million for eight reprographers in 2002, the company purchased four firms for $870,000 in 2003 and six firms for $3.7 million in 2004. By the end of 2004, the company had completed 86 acquisitions since 1997, giving it a total of 181 locations in 30 states. As a low-cost way to complement its expansion via acquisitions, the company opened 30 branch offices in 2004 and planned to open 12 more locations in 2005.

Public Debut in 2005

ARC maintained a dominant market position midway through the decade, standing as the only nationally oriented reprographics company in the country. The company controlled more than five times as many service locations as its closest rival and maintained a presence in eight times as many cities as its nearest competitor. Chandramohan and Suriyakumar decided to sell the company's stalwart position on Wall Street, both as a way to gain access to capital and to allow private investors to cash out on their investment. They filed for an initial public offering (IPO) of stock in December 2004, reorganizing American Reprographics Holdings, LLC as a Delaware corporation named American Reprographics Company in preparation for the IPO. The company completed its IPO in February 2005, raising $174 million. With the proceeds from the stock offering, Chandramohan and Suriyakumar were expected to continue their acquisition campaign and build on their already considerable lead in the industry. In the years ahead, there was every expectation that the ARC organization would factor as the preeminent competitor in the reprographics industry.

Principal Subsidiaries

American Reprographics Company, LLC.

Principal Competitors

Service Point Solutions, S.A.; Thomas Reprographics, Inc.; ABC Imaging, LLC; National Reprographics Inc.

Key Dates:

1960:: Predecessor Ford Graphics opens a store in Los Angeles.
1967:: Micro Device, Inc. is formed to take over the business of Ford Graphics.
1989:: Micro Device is acquired by Chandramohan and Suriyakumar.
1997:: An investment by TZS Capital touches off an ambitious acquisition campaign for Micro Device, which changes its name to American Reprographics Holdings, LLC.
2000:: Code Hennessy & Simmons acquires TZS Capital's stake.
2005:: American Reprographics Company completes its initial public offering of stock.