Pomeroy in Turnaround as Private Firm

HEBRON, KY — (By Lisa Bernard-Kuhn, Cincinnati Enquirer) After struggling for nearly four years to turn a steady profit, Pomeroy IT Solutions says it’s in the midst of a successful turnaround as a private company focused on long-term growth.

Roughly one year ago, shareholders of the Hebron-based tech company approved a $68 million deal to transform the 28-year-old publicly traded business into a privately held firm. Since then, Pomeroy has grown its local workforce by 150 employees, returned to profitability and completed an acquisition that’s expanded the company’s reach into Canada and Europe. “We’ve had a pretty good year. We’re really seeing some significant improvement in profitability,” says Chris Froman, Pomeroy’s president and CEO. “We’re growing our business organically, and all of the things that we’ve been working on the last couple of years are really starting to come to fruition.”

From its headquarters in Hebron, Pomeroy provides a variety of IT infrastructure, product and staffing services internationally, including contract staffing, information security, storage and 24-hour technical support services for mid-sized Fortune 1000 companies and government agencies.

Following turbulent years from 2005 to 2008 – in which the company battled falling profits, sinking stock prices and leadership turmoil under the firm’s then-CEO Stephen Pomeroy – the company’s founder David Pomeroy began making bids to take the firm private. From spring 2008 to November 2009, the company entertained nearly 30 buyout offers from the founder and other private equity investors. “That was probably the last thing I expected as the newly appointed CEO of the company,” says Froman, a former IBM Corp. executive who began at Pomeroy in 2007 as senior vice president of marketing and sales. In January 2009, Froman became CEO following the departure of Keith Coogan, who left the firm for family health reasons.

Ultimately, the winning offer landed last November from Los Angeles-based Platinum Equity for $6.50 a share, or $68 million. Transitioning to a privately held firm has allowed the company to “take much more of a long-term focus,” Froman says. “Most of your public companies are managing operations quarter to quarter, so it’s hard to make strategic long-term decisions and investments,” he says. “In our case, we were a very thinly traded stock, but the few shareholders we did have were very focused on short-term results. This has given us a new window of opportunity.”

The firm is projecting 2010 revenues of $530 million. It says its margins on earnings before taxes and other adjustments is around 5 percent – or $26.5 million. That’s a sizable gain considering the company’s losses as a public firm were $13.1 million in 2008 and $112.2 million in 2007. “The turnaround is pretty apparent,” Froman says. “Now we just have to figure out how to grow the business faster.”

Platinum Partners
At the forefront of Pomeroy’s remake has been strategic investments by the company’s new owner, Platinum Equity. Since its founding in 1995, Platinum has completed more than 100 acquisitions with more than $27.5 billion in combined annual revenue. “They’re very familiar with the IT space, and they see us as one of the few remaining platform companies out there that they can build upon,” Froman says. “If we need expertise in a certain operational areas they’ll lend a hand. It’s been a very good marriage.”

Among other tech firms, Platinum formerly owned Dallas-based CompuCom Systems Inc., one of Pomeroy’s top competitors. Platinum acquired the firm in 2004 for $254 million, selling it in 2007 for $628 million to New York-based Court Square Capital Partners. “Our ownership of CompuCom wasn’t particularly long, but there was a dramatic transformation of the company in terms of profitability, service capabilities and revenue growth,” says Jacob Kotzubei, a partner with Platinum. “When we acquire a business we have an entry strategy, not an exit strategy. We focus on buying businesses that have good business models, great management and good results. We don’t spend a lot of time trying to predict the future because our crystal balls aren’t any clearer than the rest of the population.”

Platinum’s focus for Pomeroy’s growth has been rooted in building up the company’s services sides of its businesses. In January, Platinum completed the acquisition of OAO Technology Solutions, a Maryland-based firm providing managed IT services to Fortune 500 firms, global outsourcers and government agencies. The deal bolstered Pomeroy’s current portfolio of services and added OAO’s expertise in data center services, among other areas.

Longer range, the company is working toward a business mix for Pomeroy that includes 60 percent services-oriented offerings and 40 percent product and software reselling. Getting there will likely mean growth through acquisitions. “We are currently evaluating a number of opportunities with the idea being, how can we expand the types of services and continue to build up their infrastructure,” Kotzubei says. “We are delighted with their performance of the investment to date and have great vision for continuing to invest in the company.”

New Brand, Attitude
As part of the turnaround, Pomeroy also has launched a new branding and marketing campaign that drops “IT Solutions” from its logo and adds “infrastructure.optimized.” To lead the company’s marketing initiatives, Pomeroy in January hired John McKenna, a former CompuCom executive, as its senior vice president of corporate development. “We are continuing to transition into a services led firm,” McKenna says. “We’re all about optimizing our clients’ infrastructure, which means leaving it in better shape than we found it and improving it from a quality and return on investment perspective.”

The company also has launched an advisory board made up of 50 clients who provide feedback on company offerings and initiatives including customer service and pricing. “Anybody can deliver IT services,” McKenna says. “Only those that focus on formally measuring client satisfaction and relationships can stand above the crowd.” To be sure, Froman says the turnaround also has included efforts to regain employee confidence and improve morale. In 2008, Pomeroy cut more than 850 employees under Coogan’s leadership, and in 2009 Froman authorized a wage freeze for employees. “The economy changed very quickly at the end of 2008. That was a tough decision that we had to make, but the way we looked at it was, it’s a move to preserve jobs,” he said.

Since then, the firm has held two job fairs, reinstated employee raises and developed a formal employee recognition program. “Everyone feels a sense of optimism and a sense of commitment from the management and leadership team,” says Kristy Nelson, who left Pomeroy in 2006 as its vice president and legal counsel. In 2008, she returned to the firm, serving now as its senior vice president of human resources. “Our ability to move forward over the last year really took off and from what we’ve accomplished, there really is a feeling that the possibilities here are limitless,” she says.

Additional Facts–Pomeroy by the numbers

• Employees: 3,650, of which 1,000 are local
• Headquarters: 1020 Petersburg Road, Hebron. About 40 percent of local employees work at client locations.
• Footprint: Offices in 21 U.S. cities; two offices in Canada, and one in Europe.
• Revenues: Estimated $530 million in 2010

lbernard@enquirer.com