Coinmach Laundry Corporation
Coinmach Laundry Corporation
55 Lumber Road
Roslyn, New York 11576
Fax: (516) 484-0905
Sales: $206.9 million (fiscal 1997)
Stock Exchanges: NASDAQ
SICs: 5063 Electrical Apparatus and Equipment, Wiring Supplies and Construction Materials; 5087 Service Establishment Equipment and Supplies; 7215 Coin-Operated Laundries and Dry Cleaning
Coinmach Laundry Corporation was, in the opinion of its management in 1997, the leading national supplier of coin-operated laundry-equipment services for multifamily housing properties in the United States. It owned and operated about 386,000 coin-operated washers and dryers in more than 38,000 multifamily housing properties in 31 states, the District of Columbia, and Mexico, and in 150 retail laundromats in Texas. Through a subsidiary, Coinmach was also a distributor of construction and laundromat equipment.
Growth and Development to 1990
The business was founded in 1946 in Long Island City, a community in New York City’s borough of Queens, by the grandfather and father of Jan Sussman. They started with a single coin-operated washing machine and dryer in one apartment building, collecting the money in an old sock. The business grew by convincing owners and managers of apartment buildings that it was more cost-effective and less stressful to let the company service the laundry room than to do the job themselves.
Jan Sussman, an MBA graduate of the University of Pennsylvania’s Wharton School of Business, assumed control of Coinmach Industries Co. in 1980, on his father’s retirement, taking out a loan from NatWest to buy part ownership. The younger Sussman had worked for Solon Automated Services, Inc.—one of the largest coin-operated laundry-service companies—and had managed a race track for Rapid American Corp. Coinmach had only 75 employees, 14,000 customers, and annual sales of $12 million at this time, but Sussman’s ambition was to stand atop the Empire State building and be able to say he owned all the coin-operated washers and dryers in all the buildings in sight.
With the rapid increase in the New York area of conversions from rental apartment buildings to condominiums and cooperatives, Sussman’s first challenge was to persuade owners of condo and co-op units to continue using the central laundry room rather than install their own washers and dryers. Part of his strategy was to install larger washers and dryers, allowing residents to wash and dry fewer loads than if they had their own machines. Coinmach also provided amenities such as folding tables, drying racks, and seating areas.
Coinmach also needed better operations because, Sussman later told LI Business News, ”At that time, there were no computers, they were doing business the same way they had for 40 years.” Working with General Electric, Coinmach developed exclusive improvements to its washers and dryers to give them better rinse cycles and longer agitation periods. The company guaranteed a nine-hour repair response time and formed 20 five-person service teams, with five vans in operation to bring the machine parts to the repair personnel. Coinmach earmarked $3 million for computers and software and hired three programmers to assemble a database with information on every company washer and dryer. Eventually, said Sussman, Coinmach could dispatch a service call in 12 seconds, where it used to take three hours.
To motivate his employees, Sussman offered repair teams as much as $100 per person each month in bonuses, depending on the number of times they completed repairs in less than nine hours. Managers won the right to a share in the company in 1984, and the number of management personnel who became part owners in the firm grew from 28 that year to 52 in 1994. By the mid-1980s Coinmach had the largest coin-operated laundry business in the metropolitan New York area, with 60,000 washers and dryers in 7,000 locations and annual sales of $55 million.
Coinmach entered the pay phone business in 1986, installing more than 200 Northwestern Bell telephones in a joint venture with a group of small telephone companies. Linked to a central computer at Coinmach corporate headquarters, each of the coin-operated phones had a special two-digit number that, when pressed, automatically generated a service call through the computer. Another two-digit number allowed customers to call Coinmach for refunds if the money was lost. State-of-the-art features of the system included voice-synthesis messages, detailed record-keeping, problem diagnosis, and data updates. In addition, each phone was capable of initiating a service call on its own if in need of repair or tampered with, or if the coinbox needed to be emptied. This venture proved a disaster. ’The phones didn’t work,” Sussman later told a Wall Street Journal reporter. “They were terrible.” After 18 months, he said, “I got out. It was the worst period of my life.”
A new-parts division was added in 1987 to sell other businesses some of the systems and programs Coinmach had developed. Sussman told Vending Times, ”We realized our experience with collecting and handling coins, our superior maintenance and security systems, our computer software packages, our parts purchasing capability, and our expertise in facility-design layout and installation techniques are items that other companies would be interested in utilizing.”
A 1989 leveraged buyout of Coinmach raised $15 million for future acquisitions and left Sussman’s family with a 30 percent share in Coinmach, enough for him to continue control of the company with a small group of investment partners.
Coinmach in the Early 1990s
Coinmach’s sales reached an estimated $85 million in 1990, when the company had 340 employees. Sussman had programmed its computer to predict when each of the 75,000 machines it was servicing in 7,000 buildings had taken in the $40 necessary to justify a collection, and a system enabling the company to handle 1,500 daily telephone complaints within 10 seconds each, guarantee repair calls within nine hours, and achieve a 98-percent rate in getting the right parts from storage to repair personnel.
Coinmach also had broadened the scope of its activities. One division was selling ready-to-operate laundromats and dry-cleaning establishments to investors, and a subsidiary was lending money to prospective store owners. The company also had established about 200 on-premise laundries in restaurants, hotels, health clubs, and similar businesses. It was selling commercial laundry parts at discount prices and remanufacturing its own old machines at the rate of 125 a week.
Sussman also was motivating Coinmach’s employees by offering bonuses as they moved along a “growth path.” This involved attending classes, demonstrating their skills, and undergoing performance reviews. As the workers moved forward, they were given the right to wear shirts of progressively lighter shades, starting with blue and advancing to white. Sussman claimed he was saving money by giving the ordinary worker more incentives and responsibilities, because it enabled the company to cut back on supervisors.
Also during 1990, Coinmach established American Laundry Systems, a joint venture with the government of Hungary to found the first self-service laundromats in Eastern Europe. These outlets, formed from converted state-run establishments, were to be equipped with video games and television sets. That year Sussman was named one of Long Island’s five “entrepreneurs of the year.”
By 1993 Coinmach had installed, in .two apartment buildings, a computer system that allowed residents to call in to find out if the washers and dryers in the laundry room were occupied, thereby preventing needless elevator trips to the room. The company also was developing a feature allowing residents to call up and enter the number of washing machines and dryers needed. The computer then would call back to notify when that number of machines would be available.” The computer will even call you before the end of your dry cycle,” Sussman said, “so your clothes won’t wrinkle.” The system not only notified company technicians when a machine had broken down but also reduced repair time by diagnosing the problem.
Coinmach Industries had flat annual revenues between 1992 and 1994, ranging between $71.9 million and $73.9 million. The company lost $13 million in 1992 and $12.3 million in 1993, mostly because of heavy interest expenses. It lost $5.7 million in 1994 before consideration of an extraordinary gain of $20.4 million stemming from early extinguishment of debt.
Emphasis on Acquisitions, 1995-97
In January 1995 management, with its equity sponsor, Golder, Thoma, Cressey, Rauner Fund IV, L.P., acquired Coinmach Industries Co., and initiated a strategy of growth through acquisitions. This strategy was designed to increase its installed machine base of about 54,000 in the Northeast and to provide the company with a strong market presence in other regions. Sussman’s role in the company ended at this time, with Stephen Kerrigan, who had been chief financial officer, becoming chief executive officer.
Coinmach Industries became The Coinmach Corp. in April 1995, at which time it acquired Solon Automated Services, which had about 174,000 washers and dryers in 18 states. Although Solon had lost money in every year since 1987, it received an offer of about $12.5 million from Coinmach for its stock. One consultant explained that Solon had heavy depreciation expenses but a positive cash flow to help pay for the capital to run the company and service its debt. He also suggested that Coinmach might be acquiring Solon to prevent a competitor from purchasing it. Solon lost $6.9 million in fiscal 1994 on revenues of $104.6 million. It was merged into Coinmach in November 1995.
The Coinmach Corp. became a public company, Coinmach Laundry Corp., in July 1996, when it sold more than 4 million shares of common stock at $14 a share. After redemption of $19.2 million worth of preferred stock, net proceeds from the offering came to about $35.3 million, before expenses. Following the offering Golder, Thoma, Cressey, Rauner Fund IV, L.P. retained 45.5 percent of the shares of common stock.
Coinmach purchased Allied Laundry Equipment Co. of St. Louis in April 1996 for $15;5 million in cash, adding about 24,000 machines in the Midwest to its market presence. In November 1996 Coinmach agreed to buy Kwik Wash Laundries L.P. for $140 million in cash and notes. Based in Dallas, Kwik Wash was serving multifamily housing properties primarily in Texas, Louisiana, Arkansas, and Oklahoma, and also was operating about 150 laundromats in Texas. The acquisition added about 74,000 machines to Coinmach’s roster. Coinmach took out $200 million in loans and revolving credit concurrent to this purchase.
Coinmach acquired Atlanta Washer & Dryer Leasing, Inc. (doing business as Appliance Warehouse) in March 1997 for $6.3 million in cash and notes, thereby increasing its presence in the South by about 14,000 machines. This purchase also put Coinmach into the business of leasing laundry equipment and other household appliances to property owners or managers, corporate-relocation companies, and individuals. And in April 1997 the company acquired Reliable Holding Corp. of Glen-dale, California, for about $44 million in cash, thereby adding about 49,000 machines in California and the Tijuana, Mexico, metropolitan area to its base. In June 1997 Coinmach increased its previous $130-million term-loan facility by $60 million.
Coinmach had revenues of $178.8 million and a net loss of $17.6 million—half of it from early extinguishment of debt— in fiscal 1996 (ending March 29, 1996). During fiscal 1997 (ending March 28, 1997) it had revenues of $206.9 million and a net loss of $10.5 million. Its long-term debt was $345.5 million at the end of fiscal 1997, compared to $42.2 million at the end of 1994, before the adoption of its acquisition program.
Coinmach in 1997
Coinmach’s core business continued to involve the leasing of laundry rooms from building owners and management companies, installing and servicing laundry equipment, and collecting revenues generated from laundry machines. The owner or property manager maintained the premises and provided utilities such as gas, electricity, and water. In return for the exclusive right to provide laundry-equipment services, most of Coinmach’s leases stipulated monthly commission payments to the location owners, usually based on a percentage of the cash collected from the laundry machines. Many of the leases required Coinmach also to make advance rental payments to the location owners.
Coinmach was meeting about one-third of its anticipated machine-installation requirements by rebuilding and reinstalling some of its machines at about one-third the cost of buying new ones. A fleet of 314 radio-operated vehicles allowed the quick dispatch of service technicians in response to the approximately 2,200 service calls a day.
Through its Super Laundry Equipment Corp. subsidiary, Coinmach was constructing complete turnkey retail laundromats, retrofitting existing retail laundromats, distributing exclusive lines of commercial coin and non-coin machines and parts, and selling service contracts. The construction of laundromats and related equipment sales constituted about 90 percent of its revenues.
With the Kwik Wash acquisition, Coinmach became the operator of 150 retail laundromats throughout Texas, providing laundromat services at all such locations. As a result of the Atlanta Washer & Dryer Leasing acquisition, Coinmach became a lessor of laundry equipment and other household appliances to corporate relocation entities, individuals, property owners, and managers of multifamily housing properties.
Coinmach was leasing 26 regional offices and its executive offices in Roslyn, New York, in 1997. It also was maintaining three regional remanufacturing facilities. Of its revenues in fiscal 1997, the Northeast (New York, New Jersey, and Connecticut) accounted for 39 percent; the South-Central region for 30 percent; the Mid-Atlantic for 14 percent; the Southeast for 12 percent; and the Midwest for 5 percent.
Automática SA de CV (Mexico); Coinmach Corporation; Coinmach Laundromat GP Corp.; Coinmach Laundromat LP Corp.; Coinmach Laundromat Holding, LP; Grand Wash & Dry Launderette, Inc.; Maquilados Automáticos SA de CV (Mexico); Super Laundry Equipment Corp.
Aregood, Chris, “Laundry Business May Be Spinning Toward Buyer,” Philadelphia Business Journal March 3, 1995, p. 7.
Bowers, Brent, “Jan Sussman Coins Way to Clean Up in Laundry Business,” Wall Street Journal, July 9, 1990, p. B2.
”Clean Profits,” Success, March 1994, p. 32.
”Coinmach to Acquire Kwik Wash for $140 Million,” New York Times, November 26, 1996, p. D4.
”Coinmach Launches New Parts and Services Division, Offering Systems, Programs Operation Has Developed,” Vending Times, November 1987, p. 13.
”Coinmach Tel Begins to Install Northwestern Bell Payphones in NY Area, Linked to Central Computer,” Vending Times, June 1986, p. 13.
”Jan Sussman: Cleaning Up with High Technology,” LI Business News, February 28, 1994, p. S25.
Mason-Draffen, Carrie, “A Tale of Dirty Duds and Soapy Suds,” Newsday, November 12, 1990, Sec. Ill, p. 5.
Peters, D.J., “Dial Away Laundry Hassles,” New York Daily News, August 30, 1993, Sec. 1, p. 22.