By Cary McGovern
There has never been a more opportune time to go into the records-management business. The year 2000 marks the merger of the two industry giants Iron Mountain and Pierce Leahy. This merger will open the door for local entrepreneurs to establish themselves in important niche markets.
Iron Mountain Inc. Buys Pierce Leahy Corp.
KING OF PRUSSIA, Pa. (Reuters)--Iron Mountain Inc. plans to buy Pierce Leahy Corp. in a $1.2 billion stock deal, Pierce Leahy said Oct. 21, combining the two largest records-management companies in North America. (To see the full story, access abcnews.go.com/wire/Business/ reuters19991021_1552.html.)
Why is this announcement so important? The records-management market has been in consolidation for the last several years. Both Pierce Leahy and Iron Mountain have bought the market leaders in each major market. Although the giants have a stranglehold on the high end of the market, industry observers believe that this consolidation has opened new market access for the local entrepreneur.
Three Market Perspectives
Major Markets. The major records-management markets around North America are generally cities larger than 1 million to 1.5 million people. The newly combined company, Iron Mountain Records Management, will have locations in more than 70 markets of this size, mostly in the United States and Canada. Although Iron Mountain has the size and capability to perform virtually any records-management function, its focus continues to be on the very largest accounts in each market.
It has been our experience that local and regional companies prefer to deal with local companies. The local entrepreneur has the advantage over the large company in customer service and flexibility. The key for successfully competing with Iron Mountain in these major markets is service. Many of my customers who go head-to-head in competition are very successful; their most important components are accessibility to management and personal service. If the customer wants something special, he can speak with the owner. Try that with Iron Mountain.
If you are a new start-up or entrepreneurial operator in one of the major markets, this may be the catalyst that you need to build your business. Although the buyout of Pierce Leahy will take place in early 2000, it will likely require two to three years for Iron Mountain to fully integrate the two operations. Based on the many mergers that have taken place over the last few years, you can count on there being operating difficulties and a management shuffle from the top down in each location. If you want to build your business, the time is definitely now.
Growth markets. Markets smaller than 1 million in population are considered the best markets for the development of new commercial records businesses. Generally, communities from 200,000 to 1 million have not yet attracted the major competitors. However, these cities seem to have the highest percentage of potential new records-storage business. It is likely that less than 50 percent of the existing marketshare has already been captured by all of the local competitors. In addition, existing records-storage companies in growth markets typically do not offer a full line of records- management services. It is likely that communities of this size have two or three competitors that grew up out of general warehousing, moving-and-storage or the self-storage industry.
If you are in a growth market of less than 1 million, you are in the hottest area for growth in records management. This market will surely be the next wave for acquisition. The market leader will be the most sought after by Iron Mountain or any acquirer. It looks like you will have three to five years to build up your business and become the marketshare leader. Remember, the more professional your operation and the more services that you provide, the more valuable you will be.
Micro Markets. Markets of less than 200,000 are developing the largest number of new start-ups. I get calls and e-mails on a weekly basis from entrepreneurs in small communities all across America. They want to know if it is possible to start up and be profitable in a small community. Recently, I have worked with start-ups in communities as small as 50,000 in population. The population size and the number of businesses in your community always drive your volume. If you are in a micro market, you can be successful and make a significant return on your investment. One advantage that you will have is the prices and margins are generally higher in a smaller community.
Several months ago, I described in another article the formula for determining market size. It is worth repeating. Although this formula is not perfect, you can use it with some confidence as a benchmark for your community.
First, draw a circle around your market area, usually 25 to 50 miles for commercial records centers. Then calculate the total population in that market area. Multiply the population by five. That calculation yields the number of boxes in your community. Boxes are an average of 1.5 cubic feet (letter/legal are 1.2 cubic feet, letter transfer cases are 1.6 cubic feet and the legal transfer case is 2.4 cubic feet). Multiply the number of boxes by 1.5 to calculate the number of cubic feet available. Generally, the amount of boxes captured by commercial records centers is less than 50 percent of the total (smaller communities may be as high as 60 percent or more).
80,000 people in a 50-mile radius
Determining Gross Revenue Potential
In a community of 80,000 to 100,000 people, it is likely that you can acquire 50,000 cubic feet of storage in two years and 100,000 cubic feet in the first five years of operation with an aggressive marketing plan. Let's use 100,000 cubic feet as a benchmark for determining the potential revenue:
|100,000 cubic feet
x.25 average cubic foot storage rate per month
$ 25,000 monthly storage revenue
x1.65 service revenue is a minimum of sixty-five cents per storage dollar
$ 41,250 monthly storage and retrieval revenue
These estimates are general in nature, but are formulated from actual industry information. It is important to remember that the more services you provide, the more your service revenue will expand. Each 100,000 cubic feet of stored records can generate $500,000 in gross revenue.
Consider Records Management Now
If you haven't considered records management as a business, now is a great time to do so. You can access more than 25 articles and other information concerning tools and resources for records center start-up on the FileMan Records Management Website at www.fileman.com.
Regular columnist Cary F. McGovern is a certified records manager and owner of File Managers Inc., a records-management consulting firm that also provides outsourcing services, file-room management and litigation support services for the legal industry. For more information about records management, contact Mr. McGovern at File Managers Inc., P.O. Box 1178, Abita Springs, LA 70420; phone (504) 871-0092; fax (504) 893-1751; e-mail: [email protected]; www.fileman.com.