Strength In Diversity
In April 1999, a group of investors combined nine of the country's largest residential construction plumbing firms to form a new company, American Plumbing and Mechanical Inc. Total revenues for these companies in 1998 were about $320 million. Based in Round Rock, Texas, AMPAM made No. 3 in this magazine's 2001 Pipe Trades Giants list with $566.7 million in revenues.
The company estimates its 2001 revenues at nearly $610 million; nine-month results for the year see AMPAM at $461.7 million.
At the time of the roll-up, there was much speculation as to how AMPAM could survive in the cyclical residential new construction market while many recent consolidators focused on the commercial construction or service markets. We sat down with Robert Christianson, AMPAM's chairman and CEO and former president of one of the founding companies, Christianson Enterprises, to discuss the company's success and growth.
Since the roll-up two years ago, how has American Plumbing and Mechanical changed?It is probably more meaningful to discuss the things that have not changed. Significantly all of the people who were responsible for starting and growing the businesses we acquired are still actively involved with AMPAM today. We continue to operate the company on a very decentralized basis, and local managers are empowered and compensated to run their locations as if they were the owners.
How many companies have been acquired, and how many employees does AMPAM have? Are these companies operating under their own names, or under American Plumbing and Mechanical?AMPAM acquired nine companies on April 1, 1999 (during the initial roll-up). We acquired three more companies on Sept. 30, 1999, and another on March 1, 2000. During 2001, we initiated a strategy to brand the AMPAM name. A part of this strategy involved changing each of these companies' names to include AMPAM as part of it. For example, Christianson Enterprises is now named AMPAM Christianson.
Today, we have approximately 6,000 employees vs. approximately 3,800 at the time of our consolidation in April 1999.
How have these companies improved since becoming part of the AMPAM family?We have learned a lot from each other. As you look at the companies that made the decision to become part of AMPAM, you will notice that each of them were either leaders in their markets or possessed long-standing relationships with major builders and developers. In order to have accomplished this level of success, each of these companies was doing something special that they could share with our other locations.
How active is AMPAM in acquiring additional companies?Beginning in the second quarter of 2000, AMPAM shifted its growth strategy from acquisitions to new start-ups and expansions of existing locations. To date, we have completed single-family plumbing start-ups in Dallas, Houston, Charlotte, N.C., and Sacramento, Calif.; a multifamily and single-family plumbing start-up in Denver; a commercial start-up in Sacramento; and HVAC start-ups in Baltimore, San Antonio, Atlanta and Orlando, Fla.
What criteria do you look for in such companies?Whenever we go into any market -- whether through an acquisition or a start-up -- we are focused on those markets that have the ability to sustain above-average growth rates and where we can service the needs of our existing customer relationships.
PM: Christianson Enterprises was one of the founding companies of AMPAM. You instituted the voluntary "Jobs on Credit" program of employee compensation, where specialized crews installed their portion of the job and moved on to the next site. Is this type of employee compensation program being used at AMPAM?
Christianson: When it is possible, yes. We believe a compensation system that rewards employees who are specialized, efficient and motivated to work is a winning strategy for all parties involved, including our customers.
Everyone in the industry is complaining about the lack of skilled labor. What is AMPAM doing to attract and retain skilled and valuable employees? Do you have any recruitment programs? What about training?There is no question that a lack of qualified labor has been an obstacle to growth in recent years, and AMPAM is doing many things to attract and retain good employees. As a starting point, we provide medical and dental insurance to all employees. In addition, we provide a 401(k) plan and the company matches a portion of the amounts contributed by our employees.
The company is very active in recruiting and training employees. This involves a coordinated effort between both our operating locations and at the corporate offices. Substantially all our locations have apprentice programs. In addition, we have a management-training program that takes experienced tradesmen and recent college graduates and puts them into a 12- or 24-month training program where we develop their skills to be middle- and senior-level managers of our operating locations.
What is AMPAM doing that your competition isn't?We are expanding our use of computer-aided drafting (CAD), cut sheets for prefabrication and isometric drawings for installation. These are processes and technologies that improve both the quality and efficiencies of our work and, in turn, translate into a better work product for our customers.
How many vendors have you established buying programs with? Are they exclusives?As a result of our acquisitions and start-ups, AMPAM has a significant number of supply-base relationships in place. Virtually none of these relationships are exclusive for any particular geography.
Looking toward the future, we believe that AMPAM needs to focus on building topnotch procurement relationships with a relatively small number of key suppliers. Our intent is to develop strategic relationships with our best and most capable suppliers and to drive the majority of our purchasing dollars through that channel. The key suppliers that we move forward with will be those who are best-positioned to support AMPAM's geographically diverse business model with superior and consistently applied account management, service and support, and continuous improvement efforts.
In other words, we are going to get very focused and very strategic with our supply-base management.
AMPAM focuses on residential new construction. What happens when the new construction market falls? Will the company turn to service work?We believe that one of AMPAM's greatest strengths is its diversity, both by line of business and by geography.
Approximately 50 percent of our 2001 revenues have come from single-family activities, with multifamily revenues accounting for approximately 30 percent and commercial 20 percent. Each one of these lines of business has a different business cycle. As a result, we believe our risk associated with slowdowns is minimized.
The same thing can be said for our geographic diversity. Our single-family locations are in such markets as northern Virginia; Baltimore; Austin, Texas; San Antonio; Dallas; Houston; Charlotte; Mesa, Ariz.; Las Vegas; Riverside, Calif.; San Diego and Sacramento.
In the multifamily business, we service the Orlando, Atlanta, Washington, Houston, Colorado, Southern California and Northern California markets. Our commercial companies work all over the country, but have activity in Southern California, Northern California, Florida, Denver, Ohio and Indianapolis.
The one thing these markets have in common is their level of economic activity. Additionally, given the continuing shortage of skilled labor, if one market begins to soften, we have the ability to shift workers to another area that is continuing to expand. This is a benefit to our employees.
Has AMPAM altered its strategy about going public?Our goal has always been to maximize the value of our company for our stockholders, which could involve taking the company public. I should point out that when I speak of stockholders, I also include thousands of our employees that have been granted stock options.
The first step to maximizing stockholder value is insuring that good operational decisions are being made. That has been our focus from day one.
What are some specific goals for AMPAM over the next 3-5 years?Our goal is for AMPAM to become the leading plumbing and mechanical contractor in the nation. By leading I don't mean the largest, but, rather, a company that has designed and executed a business model that takes advantage of our strengths and consistently and efficiently delivers them to our customers.
What are the biggest problems AMPAM is facing in the marketplace?The most important thing we can do at AMPAM over both the near and longer term is to get the marketplace to recognize that AMPAM has a lot to offer. Although we started out as separate companies, today we are a single company with strengths that cannot be duplicated.
We offer our employees an opportunity to work for a company that is expanding its geographic operations. I believe this results in not only greater job stability, but also an opportunity to advance, and to work in areas of the country that are desirable for many personal reasons.
Similarly, we offer our suppliers and customers financial strengths and business processes that, we believe, reduce their costs and business risks.