Ten years ago, COHR was a struggling affiliate of a not-for-profit hospital lobbying organization. Today, it's a darling of Wall Street.
COHR-which specializes in the growing niche of servicing hospital medical equipment-went public on the NASDAQ exchange in February 1996. Its initial public offering was pegged at $9 per share, but that jumped to $11.75 as demand outstripped supply 10-to-1. Within months the stock flirted with $30 per share but has since settled down to trading in the mid- to high 20s. It has been one of the West Coast's best performing IPOs in the past year.
What's the company's secret? Actually, there isn't one. Analysts say the company simply has the right mix, combining experienced management, an aggressive acquisition pace and a presence in growth markets.
In an era when healthcare companies are consolidating and are under pressure to cut costs while technology rapidly evolves, outsourcing reigns supreme. According to D.F. Blumberg & Associates, an industry consultant, the U.S. equipment servicing market is growing at an annual compounded rate of almost 13%. The market will reach $6.7 billion in spending by the end of the decade, compared with $3.7 billion in 1994.
Much of that growth is coming at the expense of medical equipment manufacturers, which find themselves unable to compete with independent service companies like COHR. The company's equipment servicing division, COHR MasterPlan, accounts for more than 75% of company revenues, up from about 64% two years ago.
"We focus on both servicing and group purchasing, but there is more opportunity on the COHR MasterPlan side and more potential," said Umesh Malhotra, COHR's chief financial officer.
Group purchasing accounts for about 14% of COHR's revenues, while ancillary businesses such as software sales, consulting and security account for the remainder, Malhotra said.
John Calcagnini, an analyst for Oppenheimer & Co. in Los Angeles, explains the competitive advantages companies like COHR enjoy: "Manufacturers typically have one-year warranties on equipment and attempt to sign up the customer for extended service agreements . . . COHR competes with these extended service agreements by offering its comprehensive equipment management services at a much lower cost."
COHR's primary competitors in the equipment servicing business are Downers Grove, Ill.-based ServiceMaster, with annual revenues of about $115 million, and Arlington, Texas-based InnoServ Technologies, with annual revenues of about $55 million.
For its third quarter ended Dec. 31, 1996, COHR posted net income of $1.3 million, or 23 cents per share, up 171% from net income of $478,000 in the year-ago quarter. Revenues rose 41% to $23.5 million. For the nine months, net income rose 136% to $3.3 million, or 64 cents per share, from net income of $1.4 million in the year-ago period. Revenues rose 37% to $65.1 million.
Analysts give heady projections for COHR. Krishen K. Sud of Needham & Co. projects fiscal 1998 revenues of $128 million and net income of $6 million, or $1.25 per share. That would be nearly triple 1995's revenues and more than quadruple its earnings. Oppenheimer's Calcagnini forecasts similar performance.
Paul Chopra, COHR's chief executive officer, is even more ambitious. "My goal is to head up a $300 million-a-year public company," he said during a recent interview at COHR's headquarters in Chatsworth, Calif., a suburb of Los Angeles. Chopra hinted that may come much sooner than Wall Street thinks but declined to comment further.
A glimpse of Chopra's strategy at COHR may be seen through the company's growth, much of which has been fueled by acquisitions. COHR has snapped up 19 companies in the past three years, virtually all mom-and-pop servicing companies bought for small amounts of cash. Most employees have been retained by COHR.
But the company upped the ante in recent weeks. On Jan. 31, COHR announced the purchase of the MediQuip Sterilizer division of Kalamazoo, Mich.-based Stryker Corp. for an undisclosed sum. With 75 employees and annual revenues of $9.2 million, the deal was the company's largest to date. On the same day, it also announced the acquisition of Charleston, W.Va.-based RadServ, which provides sales and services for refurbished Siemens Corp. radiology and oncology equipment. Annual sales are $2.5 million. Two other smaller acquisitions added up to an overnight $13 million boost in pro forma revenues.
"We're certainly looking at bigger deals now," Chopra said. He suggested the Stryker deal was a steppingstone toward much larger, stock-swap-style transactions.
However, Chopra cautioned that deals were not going to be made merely for the sake of growing the company. "We've established restraints, and we're looking at a proper fit and price," he said.
Such focus had not always prevailed at COHR. Established in 1976 as a for-profit affiliate of the then Center for Health Resources (now the Healthcare Association of Southern California, which owns a 20% stake in COHR), the company struggled during the gung-ho 1980s. In 1987, it had lost nearly $2 million on less than $7 million in revenues. At that point, Chopra, as CFO, helped devise a plan to slash staff by 20% and focus on equipment servicing. By 1991, COHR was in the black, netting $798,000 on revenues of $14 million.
He became CEO in 1993, 10 years after answering a blind advertisement in the Los Angeles Times for COHR's controller post.
A two-time immigrant-Chopra left his native India for Canada as a teen in the 1960s, then moved to the U.S. in the mid-1970s-he previously held finance posts with Gillette, Dominion Textiles, Rolls-Royce, Litton Industries, Pepsico and Centronic Data Computer Corp.
Chopra said he hopes to parlay his diverse corporate finance experience into "making COHR the largest independent service organization in the country."