Breaking News: May 1998, LandCare USA Releases Prospectus

The prospectus, a 104-page document obtained by Lawn & Landscape, outlines the company’s current composition and its plans for growth. Such a document is required to be filed with the Securities Exchange Commission in order for a company to issue public stock. While the document provides a clearer picture of the group, company executives are still limited in their ability to comment on certain specifics before the stock offering occurs, which is scheduled for the middle of May (under the symbol GRW on the New York Stock Exchange).

Following are some highlights of the prospectus:

• The company plans to offer 5,000,000 shares of common stock at a price between $10 and $12.



• The seven companies that will merge to form LandCare USA completed 1997 with combined revenues of more than $118 million, gross profits of more than $25 million and net income of $5.8 million.



• From 1995 to 1997, the seven merging companies’ combined revenues increased at a compound annual growth rate of approximately 10 percent.



• LandCare USA will pay the owners of the seven companies a combined total of $27.2 million in cash and 5,162,645 shares of common stock to acquire their companies. (These shares are separate from the 5,000,000 that are to be sold publicly.)



• The public stock offering is expected to ultimately yield approximately $47.2 million for LandCare USA.



• The company hopes to obtain a bank line of credit of at least $50 million following the stock offering.



• The company’s board of directors will include Pat Norton, former CEO of Barefoot Grass and a one-time candidate for LandCare USA’s CEO position.



• The company will operate more than 1,300 vehicles and the merging organizations will bring together more than 2,500 customers.



• The company will look for efficiencies of scale from areas such as equipment purchases and insurance, which represented combined costs of $5.9 million and $5 million, respectively, in 1997.



• Trees Inc., the $50-million tree care company in Houston, will draw the highest acquisition price of more than $11 million in cash and more than 1.8 million shares of stock.

The key to LandCare USA’s future will obviously be the success it achieves in enacting its acquisition strategy. "Acquisition targets will have the scale, customer base, expertise and management necessary to be a core business into which the company can consolidate other acquisitions in that geographic area," read the prospectus, with high population areas such as the Pacific Northwest, Southern California and Northern Virginia being of particular interest. "Special emphasis will be placed on diversifying the company’s operations geographically to serve the needs of large regional and national property owners and managers and to minimize the effect of seasonality in the colder regions served by the Company."

The prospectus also sheds light on the business mix of LandCare USA. Landscape maintenance comprises 75 percent of its revenues, including Trees Inc.’s $50 million of tree care and line clearing business. Landscape installation represents the remaining 25 percent. Among the six companies other than Trees Inc., however, landscape maintenance represents approximately 60 percent of the service mix, and growing this number will be one of the company’s goals.

LandCare USA recognizes this balance has potential for significant variation. "Trees Inc. derived approximately 96 percent of its revenues from 20 utility customers, three of which accounted for approximately 54 percent of its total revenues," noted the prospectus. LandCare USA hopes to expand Trees through other companies after additional mergers create suitable market density to support the equipment and expertise costs of tree services.

RISK FACTORS. The company also identified what it sees as its primary operating challenges in the future, in a section entitled,"Risk Factors," which is a required part of any prospectus.

Included among the 22 risks were those related to its acquisition strategy. "The Company expects to face competition for these acquisition candidates, particularly from a few relatively large public or private companies that have begun or may begin to pursue the acquisition of landscape and tree service companies... This competition may limit the number of acquisitions that the Company is able to consummate and may lead to higher acquisition prices."

And smaller contractors concerned about the ability to compete against an organization with such deep pockets may in fact have the upper hand in some situations. "Some of the Company’s competitors may have lower overhead cost structures and could outbid the Company for landscape and tree service contracts by offering their services at a lower price than is profitable for the Company," according to the prospectus.

The company spent the weeks leading up to the stock offering on a nationwide barnstorming tour wherein it paid visits to institutional investors to answer any questions.