New Investment Interest

Cary F. McGovern Comments
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Never in the 50-year history of commercial records management has there been the investment interest that exists today. Private-equity funds, investment consortiums and private developers are flocking to this once obscure industry that has always been under the radar for many investors.he commercial records-management industry has been entrepreneurial from its beginning. The companies that flourished tended to have great salespeople as their owner-operators. Over a 40-year period, some of these businesspeople have made millions of dollars with hard work, perseverance and a long-term business strategy. During the last 10 years, many have cashed out and sold to companies such as Iron Mountain, Pierce-Leahey and Recall (a subsidiary of Brambles International). Today we see a new flurry of activity. For the first time ever, investment groups with caches of underutilized capital are looking for long-term investments in the annuity-based financial model of commercial records management.

'What's the Buzz--Tell Me What's Happening'

This line from the rock musical "Jesus Christ Superstar" aptly summarizes new investor interest in records management. It appears the sudden interest is caused by several events over the past few years. Let's take a look at what is causing this:

The demise of the dot-coms. The investment boom of the late '90s has ended with a resounding thud. Those who invested in the smoke and mirrors of the technology boom are now looking for safer, more mundane investments. Iron Mountain (a publicly traded company) has received a "strong buy" recommendation from several investment advisers. The company's storage revenue has increased for 53 continuous quarters. Many industry insiders call storage revenue "permanent revenue."

Corporate lies and corruption. The fall from grace of Enron, Anderson, WorldCom and Global Crossing underscores the need for corporate responsibility in record- keeping and document destruction. In an article titled "Lies, Corruption and Document Destruction" (September/October issue of ARMA International's The Information Management Journal), author David Stephens writes, "Never before in the history of American business has a global corporation been destroyed by acts directly related to document retention and destruction."

Global terrorism. The acts of terrorism that have been perpetrated against the United States and other Western countries have heightened the need for a records-management strategy. Document creation, use, maintenance, archive and disposition policies mirrored in operating practices are critical to disaster avoidance. Businesses that lose vital records typically go out of business within a year after a disaster. Commercial records-management and destruction services are fundamental tools against terrorism.

The Health Insurance Portability and Accountability Act (HIPAA). HIPAA has confounded an already beleaguered industry. Healthcare practitioners are busy trying to determine the effect HIPPA has on their record-keeping practices. Its primary emphasis appears to be related to the access, distribution and destruction of private medical information. Commercial records centers and document-destruction services play a key role in this issue.

Private Equity Activity

In addition to the public companies that have aggressively taken positions in the industry are other private-equity groups actively at work. Two examples are:

ArchivesOne (www.archivesone.com)--Founded in 1991, ArchivesOne offers records management and storage to more than 2,300 businesses, including banks, law firms, hospitals, corporations and medical practices. The company offers storage and delivery of records to customers in Connecticut, New Jersey, New York and Ohio. (For more information, contact A. J. Wasserstein, president, at info@archivesone.com.)

Archive America (www.archiveamerica.com)-- In 1925, Sam Blank and his family founded National Brands (the world's largest Anheuser-Busch distributor), Seaboard Warehouse Terminals (one of Florida's largest commercial-warehouse operations) and Archive America (one of the fastest-growing, off-site, records-management companies in the industry). Under the leadership of Sam's grandson, Andy, Archive America has become a national leader in document-management services.

Interest Is Expanding

On a weekly basis, we are seeing interest from private-equity investors, equity consortiums and real estate developers with strong capital positions in buying and creating business opportunities. There are three sister industries that can be leveraged for maximum market penetration: commercial record centers, secure document destruction and data-media protection. Each of these industries can offer hundreds of products and services.

Commercial records management--This annuity component offers continued growth in base storage revenue and creates a client for life. EBITDA (earnings before interest, taxes, depreciation and amortization) can be improved over traditional records management by focusing on four operating principles: effective use of technology, strategic outsourcing, batch processing and personnel abatement.

Secure document destruction--An infant industry compared to commercial records management, document destruction has become one of the fastest-growing services in administrative management. In the past, shredding and the cost of recoverable paper drove this business. Today, the drivers are security and confidentiality. HIPPA and corporate responsibility are the predominate issues.

Data-media protection--Data media is everywhere and growing. We used to consider only tape rotation and historical archives as the principal services. This growing industry includes videotapes from daycare and elderly-care facilities, e-vaulting and other nontraditional methods.

Emerging security concerns, sister industries, privacy law and changes in global policy all create greater opportunities for records management and fuel the fires of interest in that arena. As a result, more private investors are exploring related opportunities in the field. This expanded interest--and corresponding investment of capital--may translate to phenomenal growth in an already attractive business venture.

Regular columnist Cary McGovern is the principal of FileMan Records Management, which offers full-service records-management assistance for commercial records-storage startups, marketing assistance, and sales training in commercial records-management operations. For assistance in feasibility determination, operational implementation or marketing support, call 877.FILEMAN; e-mail fileman@fileman.com; www.fileman.com.

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