The Rise and Fall of RCR
In April, Robert C. Richey resigned from his position as chief operating officer of American Plumbing & Mechanical Inc. and also walked away from the company he had built for 25 years. At the time of his departure, RCR Companies' revenue was approaching $120 million, but the financial condition of AMPAM, by all accounts, is in swift decline. The following story traces RCR from its humble beginnings through its meteoric rise and its roll up into AMPAM.
Roas and Jake Richey adopted a son, Bob, in 1951. They divorced a few years later and Roas, who took custody of Bob, remarried Ted Baker. They had a son, Tom, in 1954. The Baker family lived in Fullerton, Calif., before moving a few miles north to Yorba Linda.
During his high school years, Richey floated from job to job-egg ranch, gas station, A&W and a bakery-snack bar. It wasn't until one of his friends' father, who worked for Bob Leaverton Plumbing as a mechanic, mentioned that Leaverton was looking for summer help. After Richey graduated from Troy High School in 1969, he landed a job as a warehouseman at Leaverton in Anaheim.
RCR's team at the Building Industry Show in 1997. Top: (l to r) Randy Downs, Ray Jackson, Rory Bertainia and Chris Normand. Bottom: (l to r) Greg Norris, Bob Richey, Tom Baker and Brad Tunby
Although he had an opportunity to attend college-at his parents' urging-he passed on it. "I wasn't the type of guy who liked school all that much," Richey says. None of Richey's relatives worked in the construction industry, and he didn't have the first clue about plumbing. While working for Leaverton, Richey heard about the training opportunities being offered by the local union. He took the test and out of 2000 candidates he scored in the top 5 percent.
In 1971, after he'd been accepted into the union, Richey was selected No. 20 in the military draft. The idea of getting shipped over to Vietnam didn't sit to well with him so he enlisted into the Marine Corps Reserve. He completed his basic training in San Diego and spent six months in Memphis, Tenn., training to become a structural mechanic on the A4-C jets.
Richey returned to Southern California and joined U.A. Local 582. He was indentured by Leaverton and trained at the newly opened facility in Compton, Calif. "When I first went to work for Leaverton, I think I started at $3.25 per hour," he remembers.
Only half way through his training program (a fifth period apprentice), Leaverton promoted Richey to foreman. "I had the plumbing part wired; I just didn't have any management skills and didn't know a whole lot about business," he says.
With time, his business acumen would become as sharp as his mechanical skills.
Aerial shot of RCR Companies' headquarters in Riverside, Calif., in 1991.
He started running jobs for the Mission Viejo Co., Saddleback Land Development Co., Ayers Homes and Sequoia Homes. By the mid-1970s, Leaverton Plumbing became Leaverton-Beck after Bill Beck, a college graduate from Seattle, became Leaverton's partner.
Beck and Richey became good friends. "Bob had a good work ethic," says Beck. "He was organized, intelligent and when we had a tough job, we knew we could give it to him."
Beck was so confident in Richey that he asked him to become a superintendent in 1976. "I was so young-still in my early 20s-and at that time the company had all these long-time union plumbers who were twice my age so I turned the job down," Richey says.
Had he accepted the superintendent job, the next chapter of life may never have started.
By then, Richey was talking to two other Leaverton employees about starting a new company. "I'm not sure if bored is the right word, but I needed something more in my life-to branch out and do something else. I had met a lot of people in the industry-a lot of builders-and I had made a lot of contacts," he says.
One of those contacts was Tom Williams of Sequoia Homes who told Richey: "If you ever feel like you want to start your own company, give me a call."
In August 1977, Richey, Lee Christianson and Scott Ramey started RCR Plumbing with $20,000 a piece and opened a nonunion company, one of the first new construction plumbing contractors to do so. Tom Baker joined the company as a foreman.
Their first job was to plumb seven homes for Tom Williams in Fountain Valley, Calif.
Richey and Christianson bought out Ramey about a year later.
In 1980, they moved the company from Anaheim to Corona where they purchased a 5,000 square-foot building. In less than three years, RCR reported revenues of $2.5 million. "Moving our headquarters into Corona was the greatest thing we ever did because we could still work in Orange County or the Inland Empire," Richey says.
The Southern California housing market was entering an unprecedented building boom in the late 70s.
The young company incorporated a conservative strategy early on. "We paid our bills for 25 straight years on the tenth of every month. That fiscal discipline came from Lee Christianson. He was very conservative and didn't believe in debt, " says Richey. "We grew the business on the cash flow. What ever we generated in earnings, we put back into the company."
RCR's business model mirrored much of Leaverton's, which concentrated heavily on job costing, prefabrication, engineering, purchasing power and warehouse integration. They also implemented a bonus program that helped to drive productivity.
On the surface, it seemed like the two partners had everything they could dream of: a well-managed, debt-free company, wide-open new construction market, and a crew of dedicated employees all situated in sun-drenched Southern California. But friction began tearing away at the company's internal lining.
Christianson had four children who worked for the company in various departments. Over time, they became a source of frustration for everyone. The two partners fought for quite awhile until the situation became so disruptive that it was clear that either Christianson or Richey would have to leave the company. Christianson was voted out of the company.
In 1982, the business had grown to about 3 million with 35 employees.
"When I bought Lee out in 1982, I had to go to Bank of America and borrow $500,000 and pay Lee out of my pocket for some of our real estate holdings and also pull money out of the company to settle his 50 percent," Richey explains.
While the long-term buyout was expensive, Richey says the move saved the company and positioned RCR for bigger growth. As sole owner, Richey was now free to drive the company in the direction he wanted.
Right away, he concentrated on building a strong back office. He hired a controller, an estimator, Leaverton's former engineer and several top-notch foremen. RCR manually job-costed every job they did from day one, using a peg-board system in the early days.
"The people I hired had to fit into my culture, which I would describe as 'work hard and play hard.' You couldn't be thinned skinned and work in the construction industry," Richey says.
"A lot of us were very young and motivated to become successful," remembers Tom Baker, who became a vice president after Christianson left the company. We worked a lot of hours. My normal day lasted nearly 16 hours. Everybody put in a lot of time and effort. Our journeymen and foremen saw the effort we were putting in to make it successful. We all came from the ditches; we knew plumbing so it was easy for us to relate to the employees."
In seven years, the company grew from $3.5 million to $30 million.
The company was generating $30 million of revenue from a one-acre facility that had a 4,000 square-foot warehouse and an old house that was converted into an office. The 325 employees didn't even have a place to park; they parked in the street.
To facilitate the growth, RCR moved in 1983 to a 1-acre location in Riverside. In 1988, they broke ground on an even bigger facility across the street-a 33,000 square-foot facility on 3.25 acres.
Because of directional differences he had with his brother, Baker left RCR to start his own company TL Baker Plumbing in 1986.
By the end of the 1980s, RCR had become the largest new construction plumbing contractor in Southern California. Up until that point, all Richey did was build a business. He didn't know how to tear one apart. With Southern California now in a recession, single-family housing starts dropped from 205,000 in 1986 to 43,000 in 1993. RCR felt the effects immediately. From 1989 to '93, its revenue dropped by more than half-from $30 million to $13.5 million.
"We saw the high-end single family starts slow down. That forced some competitors into our market, which was more of the medium to low-end housing. Things became very competitive in 1989. I think what saved us during that slow period is that we didn't have any debt," says Richey.
Richey and Baker agreed to fold TL Baker into RCR. With it came Baker's job-costing and field-labor tracking systems. These systems were combined with a series of cost-cutting efforts to run the business a lot leaner. While wages weren't reduced, budgets were closely scrutinized and vacation time was cut back. "Everybody pulled together," says Baker.
As Southern California was feeling the effects of a recession, the housing market in Las Vegas was booming. To support all the new casinos being built on the strip homes were going up at a record pace and area plumbing contractors had more work than they could handle.
In 1994, RCR tapped into that red-hot Las Vegas market and opened its first satellite office. "Even though Vegas is a good-ol-boy town, which makes it difficult to break into it-and they didn't want us there in the first place-we had several builder contacts that helped our cause," says Richey.
RCR's Las Vegas entry was also helped by its relationship with Todd Pipe & Supply, which drove a semi-truck full of materials and products from Southern California to the desert.
The company had no problem getting the work; the problem became managing the projects. The division grew way too fast without all the controls in place.
Both Baker and Richey began tripping over each other in the desert and their idea of how fast the division should grow was vastly different.
Revenue shot up to $10 million in two years and finding and bringing in qualified labor became the biggest challenge.
"Las Vegas is a very transient town. People come from all over the world. They stay there, work for a while, loose all their money and leave. We were warned about how tough it was to do business there. As bad as people made it out to be, it was three times worse than that," says Richey. So bad that Richey relocated there for a year trying to get it working properly. A number of employees were also relocated from Riverside to get it back on track. The problems were compounded, Baker says, by selling it too hard and fast without having the infrastructure in place to facilitate the growth.
Meanwhile, Richey attended a seminar called MAP-management action programs. The focus was on how to write a formal business plan, and how to hold people accountable through a formal goals and controls process. After which, Richey hunkered down and wrote a five-year business plan for RCR, the first ever he had written for the company. The plan put RCR on a course for diversification. Along with its new plan, came a new name: RCR Companies.
Richey started going outside the industry to hire professional people-HR, corporate training, safety risk management, and management information systems. Essentially he integrated a white-collar mentality into a blue-collar business. "We ran it like a fortune 500 company," he says.
Part of the diversification plan included venturing into the HVAC market. RCR opened its HVAC division in the Riverside facility in 1994. The company struggled with it from the very beginning. While it's the same industry, Richey admits that HVAC and plumbing are worlds apart in culture and application. "It's a different league of players," Richey says. "I went through two or three managers on the HVAC side before I got it to work."
The other challenge was that RCR didn't know the mechanics of it like they knew the plumbing side. "We were taking other people's advice," adds Baker. "And we never thought the margins were going to be as tight as they turned out to be."
In 1995, RCR added its repipe division. A decade earlier, new homes plumbed with copper started failing from aggressive soil and water conditions. Garry Gage, an employee since 1988, was tapped to lead the division. It generated $500,000 in its first full year of operation.
A year later, HVAC was added to the mix in Las Vegas. Richey hired Steve Adams away from World Air, which was the largest HVAC company in Las Vegas at the time.
By the end of '96, RCR companies celebrated its 20th year in business with a huge company party; revenue had reached $45 million with 500 employees. An office in Canoga Park and San Diego were opened in '97 and '98, respectively.
"The new offices started out being pretty small. We transferred some key employees into each one. The idea was to grow each one and have them become permanent locations or divisions of RCR," says Richey.
While RCR was concentrating on its diversification plan, the industry was entering a period of consolidation.
Houston-based Sterling City Capital LLC had rolled up several electrical contractors into a company called Integrated Electric Services (IES), which represented about $330 million in revenue. The company went public in February 1997.
Before IES became public, Richey received a number of offers from investment companies, which were looking to roll up contractors into a bigger group. "I had fended off many offers to sell and or merge my company," he explains. "I didn't want to be a part of another group." Those included GroupMac, Comfort Systems, Blue Dot and Encompass.
Byron Synder, who help rolled up the electricians, started looking at the possibilities of rolling up plumbing companies. He met Robert Christianson, CEO of Christianson Enterprises in Austin, Texas, and they started traveling around looking at what they called "best in class" in specific markets that they wanted to be in. (Best in class was loosely defined as the biggest and No. 1 in the market place). Richey was also watching the builders' consolidation and studying where he thought they were heading.
In 1998, Richey reluctantly agreed to meet Snyder, Christianson and Todd Reppert . According to Richey, they had already come up with the name American Plumbing & Mechanical (AMPAM). "They showed up one day
and gave me the dog and pony show. At first, I was pretty skeptical about it," says Richey. After that, he participated in a year of founder's meetings.
Sterling Capital had planned to take the group public, but after the market experienced a correction, those plans were tabled.
"In January of '99, they put us together with an insurance program to hold us all together, which saved us 25 to 30 percent and we all participated in that, but we had no other ties to AMPAM. That program kept us in the game," Richey says. "Between January 1 and April 1 any of the founding members could have backed out because there was no financing in place to hold to us together."
By the mid-1990s, several consolidations weren't living up to their expectations. A lot of the benefits and some synergies the companies were going to gain as a result weren't coming to fruition. Even so, Richey was attracted to AMPAM because it was a new company with several strong performing companies, which were going grow even larger.
"Because of the way it was going to be structured and the buying power the group could achieve, the contractors were very interested in it because they knew what RCR could do as a company and how we could help run this whole team across the country," Baker adds.
Shortly before the AMPAM deal was finalized, Baker and Richey weren't seeing eye-to-eye again, this time about the transition of management. Because they couldn't work out their differences, Baker departed his brother's company for the second and final time in 1999. He started Dynamic Plumbing Systems, a new construction plumbing company, also based in Riverside, but was limited by AMPAM's quasi noncompete agreement, which restricted the company's growth and number of builders it could do business through 2001. Looking back, Baker says: "I put my heart and soul into RCR for 20 years."
Meanwhile, Richey volunteered to become AMPAM's chief operating officer. The position put Richey on the road for months at a time, traveling to the AMPAM companies across the country and evaluating where systems could be standardized. He found out quickly that the "best in class" title given to the founding AMPAM companies was defined differently in each market. n
Editor's note: Part II of the RCR story, scheduled to be published in the December issue, will cover how the culture changed at RCR once it became a part of AMPAM, what Richey found about the other companies, and why AMPAM's acquistion strategy shifted to a start-up strategy.
"This article was originally posted on ww.reevesjournal.com."