By MATT MYERHOFF
The future leads down two separate paths for Earl Scheib Inc. and American Reprographics Inc.
Earl Scheib, the chain of auto paint and body shops, has delisted itself from the American Stock Exchange and its rigorous audit and reporting requirements.
American Reprographics, a chain of stores that distributes and prints construction blueprints, recently completed an initial public offering and is fully embracing the public market,and the accounting requirements that go with it.
The Glendale-based printing company has several units operating in Orange County after a wave of buying in the past decade. Its Consolidated Reprographics unit has facilities in Anaheim, Tustin and Costa Mesa. Another unit, OCB Reprographics, has operations in Irvine, Fullerton and Orange.
Los Angeles-based Scheib has 107 paint and body shops, including four in OC. It flourished decades ago with its famous $29.95 paint job.
But new, higher quality paints introduced by Detroit automakers in the 1980s cut into its business. So did the company’s reputation for less-than-stellar work.
Scheib lost $1.3 million in the quarter ended Jan. 31 on revenue of $9.7 million. That’s less than the $2 million it lost a year earlier, but the company nevertheless is pinching pennies as it tries to turn itself around.
There were takeover flirtations, but Chief Executive Chris Bement said the best offer was only $3.50 a share, while the company as valued by its real estate alone is worth at least $4.80 a share.
What about delisting and shunning the costly financial reporting requirements under the 2002 Sarbanes-Oxley accounting reform act?
That would have required buying out shareholders.
Management then hit upon a simpler idea. Since it had fewer than 300 shareholders, the company was not formally regulated by the Securities and Exchange Commission. It only had to follow listing and audit regulations.
The decision was made to delist from the American Stock Exchange and have shares traded over the counter on the pink sheets, where only annual reports have to be filed and audit requirements are far weaker.
It helped that three shareholders held about 60% of the stock, including the estate of founder Earl Scheib. That allowed management to get fast approval for the move, which was completed in March.
Now the company has plans to invest $1 million on a computer sales and ordering system that is expected to reduce inventory, prevent theft, track successful products and services and monitor attendance and payrolls.
Bement expects the savings will bring a return on the investment within 14 months. There also are plans to open another three stores this year, reversing a trend that saw 70 stores close last year.
Growing Printer
In going public in February, American Reprographics offered private equity investors the chance to cash out, while the company gained access to capital for acquisitions.
“We’ve seen a great opportunity to consolidate quickly in this industry, which is very fragmented, into small, local family-owned shops,” said K. “Suri” Suriyakumar, chief operating officer of the company.
Suri, a Sri Lankan immigrant, and his lifelong friend, S. Chandra Mohan, bought the company in 1989 when it had just two shops and annual sales of $9 million. Using traditional bank financing, they began buying up competing companies.
The company’s growth accelerated in 1997 when TZS Capital invested $15 million. Suri and Mohan recapitalized two years later, when Code Hennesy & Simmons bought out ZS Capital’s investment while providing American Reprographics with $82.5 million.
To accelerate growth even more, American Reprographics completed a $174 million public offering on the New York Stock Exchange earlier this year.
Code Hennesy & Simmons remains a shareholder with about a quarter of the stock, but now will have a chance to cash out.
“With private equity investors, it’s generally understood that they have a three to five-year cycle before exiting,” Suri said.
Myerhoff is a staff reporter with the Los Angeles Business Journal.
