Perigon Builds Multimarket Network

Edition: September 1999 - Vol 7 Number 09
Article#: 465
Author: Repertoire

In 1996, Frank Schyving surveyed the health care landscape for a new challenge. He had recently left Homedco -- where he had been president -- after its merger with Abbey Healthcare to form Apria Healthcare Group. Prior to Homedo, he had spent 20 years with American Hospital Supply (now Allegiance Healthcare), where he had served as vice president of operations.





He knew he wanted to stay in the business he knew well. But in 1996, the hospital distribution market was already mature and didn't look like much of an opportunity for an entrepreneur wanting to build a national distribution company.





The alternate site market looked more promising. But which market to zero in on? Not surprisingly, Schyving gave home care a quick look, although a non-compete agreement kept him from offering certain services for a year after he left Homedco. But he saw even greater opportunity in servicing all three major non-hospital markets -- home care, physician and long-term-care -- on a national basis.





‘As I was raising capital, one of the biggest obstacles I faced was convincing venture capitalists that going after all three markets made sense,’ says Schyving, president and CEO of Laguna Hills, CA-based Perigon Medical Distribution Corp.





The strategy made perfect sense to Schyving. After all, although each market calls for its own set of sales reps and marketing programs, a distributor servicing all three could share information systems, customer service people, credit collection people and warehouses. There's about a 40% overlap in inventory among them, he says.





What's more, a young, growing company servicing all three markets could cut the high costs usually associated with rapid expansion, he figured. Buy a physician distributor, hire some sales reps and augment the inventory, then begin servicing the long-term-care and home care markets from the same location.





Schyving convinced enough investors that his idea made sense, and in June 1996, he founded Vista Medical Distribution Corp. (The name was changed to Perigon a year later.) His goal: To create a $250 million company by 2002, and ultimately to take it public.



Making It Work



After Vista received funding in February 1997, Schyving wasted little time. In June of that year, he began a buying spree that continues today. Among the first acquisitions were Diagnostic Marketing Corp. in Englewood, CO; Wyoming Medical Supply, Casper; and Brunswick Surgical Supply, New Brunswick, NJ. In November 1997, Perigon bought Milwaukee, WI-based Wholesale Ostomy Distributors and its affiliates, a wholesale home care catalog business serving all 50 states.





To date, the company has acquired nine businesses, with locations in 12 states and sales reps in 16 states. At press time, Schyving was negotiating to close on three additional companies. Sales of current companies are expected to exceed $85 million this fiscal year, an over 30% increase in same-store sales growth.





True to form, Schyving has kept expansion costs down by taking advantage of the synergies among his company's markets. So, after Perigon bought a New York distributor that served both the home care and long-term-care markets, the company hired people who understood the physician business, and expanded into that market. Similarly, in New Jersey, Schyving bought a physician distributor, then broadened its market to include long-term-care products as well. Market expansion in other locations is underway, he says.





Concurrent with its effort to acquire distributors, Perigon is spending time and money to pull together the disparate operations it already has. For example, it is replacing the information systems of the distributors it has acquired with a system called Perigon Plus, designed by NxTrend Technology, Colorado Springs, CO. The project will begin in the Northeast, then West and Midwest.





Perigon Plus eventually will tie together the inventory systems of all the company's far-flung locations, says Schyving. Over time, the company will adopt common stock numbers to make the process that much easier to use.





The national accounting system has already been installed in the California headquarters.



Future



Perigon is here to stay, insists Schyving. Although he intends to bring the company into the public market in the future, he is not building it to sell, he says.





‘We're a young, entrepreneurial company,’ he says. As such, Perigon attempts to keep the managers of the distributors whom it buys. ‘We're a company that uses the skills of the sellers,’ he says. ‘Their skill sets are very valuable to us.’ Its focus in the immediate future will be physician, home care wholesale and long-term-care distributors, says Schyving. ‘We look for partners who have an interest in monitizing their current value and then participating with Perigon to help build value in our new entity so that they can again be rewarded when we bring our company to a public offering.





‘We also look for companies that are currently successful in the markets they serve,’ he says. ‘This is important, as they will likely be the anchor for future investments. In most cases, we will continue to operate them, as opposed to closing or consolidating them.’