2600 Chemed Center
Our goal is to be the premier provider of a variety of repair and maintenance services to both residential and commercial accounts. As always, we'll continue to listen to our customers and to expand our service offerings to meet and exceed their changing expectations.
Roto-Rooter, Inc. ranks as the leading provider of plumbing and drain-cleaning services in North America. Through company-owned outlets, independent contractors, and franchisees, Roto-Rooter serves more than 90 percent of the U.S. population and about 55 percent of the population of Canada. Franchise operations have also been established in Australia, China, Indonesia, Japan, Mexico, the Philippines, and the United Kingdom. Roto-Rooter serves residential, business, and municipal customers. While about 80 percent of the corporation's revenues in 2002 were derived from the plumbing services operations, subsidiary Service America Systems, Inc. generated the remainder. Based in Deerfield Beach, Florida, Service America offers residential and commercial customers throughout Florida and in Phoenix, Arizona, appliance and heating/air conditioning repair, maintenance, and replacement services. In addition, Roto-Rooter, Inc. reached an agreement in late 2003 to take full ownership of VITAS Healthcare Corporation, a Miami-based provider of hospice care for terminally ill patients, operating in major metropolitan areas of eight states: California, Florida, Illinois, New Jersey, Ohio, Pennsylvania, Texas, and Wisconsin. With more than 5,700 employees and fiscal 2003 revenues of $420 million, VITAS is the largest hospice provider in the United States.
The Roto-Rooter, Inc. parent company was known as Chemed Corporation until May 2003. Chemed evolved out of W.R. Grace & Company's Specialty Products Group, gaining its independence in 1982. One of Chemed's operating units was the Roto-Rooter plumbing services company, which had been acquired in 1980. Chemed took Roto-Rooter public in 1985, retaining majority ownership, but then reacquired full ownership of the subsidiary 11 years later. Service America was created as a subsidiary of Roto-Rooter in the early 1990s. Other operations of Chemed were divested between 1986 and 2002, precipitating the parent company's name change.
From DuBois Soap Company to Chemed Corporation
Chemed Corporation's history dates back to the founding of the DuBois Soap Company. In June 1920 a confident and ambitious salesman named T.V. DuBois decided to open his own business. DuBois established the DuBois Soap Company in a rented building, a small, four-story structure in Cincinnati, Ohio, adjacent to the Ohio River. The fledgling operation made soap chips and powders for the city's growing restaurant trade. Within a few short years, the firm was selling its products all over the state. As revenues increased, additional employees were added to the payroll.
DuBois Soap Company survived the bleak years of the Great Depression in good financial condition. During the late 1930s and early 1940s the company expanded its restaurant dishwashing product line to encompass a whole range of different items, including industrial cleaning and maintenance products for other industries. Soon DuBois was servicing restaurants, steel companies, heavy manufacturing firms, and food processing plants. With the rapid expansion of its product line, the company decided to increase the amount of space for its administrative and manufacturing facilities in Cincinnati. By the end of World War II, the company was producing a huge variety of cleaning and maintenance products and had developed a reputation as one of the leaders in the specialty chemical industry.
During the late 1940s and throughout the 1950s, DuBois developed its sales network and expanded its manufacturing plants. Three new facilities were built in California, New Jersey, and Texas. As DuBois's revenues increased, the company came to the attention of W.R. Grace & Company, a large conglomerate with holdings in the chemical, manufacturing, retail, fertilizer, food products, and restaurant industries. In 1964 Grace acquired DuBois and incorporated the company into its Specialty Products Group, renaming the firm the DuBois Chemicals Division. In 1971 Grace management transformed its specialty chemicals group, which included the DuBois Chemicals Division, into the Chemed Corporation, which had been incorporated as a Grace subsidiary the previous year. DuBois Chemicals developed and manufactured professional cleaning and maintenance chemicals, dispensing equipment, and processing compounds. It served as the single largest area of operation within Chemed. While Grace maintained ownership of the majority of Chemed stock, the company was given autonomy to develop its own products. In July 1980 Chemed acquired Roto-Rooter Corp. for $23 million in cash and stock.
Depression-Era Founding of Roto-Rooter
Roto-Rooter was founded in 1935 by Samuel Oscar Blanc in West Des Moines, Iowa. Born in Wisconsin in 1883, Blanc had been forced to quit school in the fifth grade, when his father committed suicide. He traveled throughout the Pacific Northwest working as a lumberman and telephone linesman during the first decade of the 20th century, returning to Wisconsin in 1906 to marry. Blanc had taken a variety of sales jobs over the course of the ensuing two decades, but like so many other Americans in the Depression era, was limited to odd jobs by the early 1930s. Little did he know that a backed-up toilet would lead to a permanent career.
In 1934, Blanc's son, Milton, asked for help unclogging a sewer system blocked with potato peelings. Together they used a length of flexible metal cable to free the clog, prompting the father to seek "a better way" to do the job. Having taken correspondence courses in electrical and mechanical engineering, S.O. Blanc spent the next few months developing an electrically powered drain cleaner that featured a rotating steel coil with blades at one end to cut through virtually any blockage, even tree roots. Blanc knew he had a great idea on his hands; the alternative was to dig a trench along the pipes, find the clog, and clear it. Before the year was out, he had started advertising his service and applied for a patent on his device. Wife Lettie came up with the name that would become the company's most valuable asset: Roto-Rooter. The firm was incorporated in 1936, the same year Blanc registered his trademark.
The foundation of the company's nationwide franchise system was laid early in 1935, when C.W. Crawford wrote asking to "rent" a Roto-Rooter and start his own business. That first contract, for $400, bought an exclusive, four-county territory for "the life of the patent," but the agreement was soon revised to five cents per sewer in a given region. Within two years of its first lease agreement, Roto-Rooter had licensed more than 100 territories from Florida to Washington, with a concentration in the Midwest. The central organization manufactured drain-cleaning machines and replacement parts and provided a minimal amount of technical and managerial support to licensees.
But franchising fees alone were not enough to support ongoing patent and trademark registration and defense of those intellectual properties. In 1936, Blanc set up a separate operation, Roto-Rooter Service Company, with an entirely new modus operandi. Instead of licensing territories, this business essentially employed individual independent contractors in New York City, Boston, Baltimore, and other East Coast cities. Headquartered in Iowa, the central organization supervised advertising (but little else) in exchange for a percentage of each contractor's receipts.
By 1938, when Blanc received a patent on his original design, company machinists had developed an industrial-sized drain cleaner called the Royal Street Sewer Cleaning Machine as well as a kitchen-sized model dubbed the "Niard"--drain spelled backwards.
Advertising-Fueled Growth for Roto-Rooter: 1940s-50s
Blanc realized that the Roto-Rooter concept was terribly easy to reproduce. Although he continued to defend the physical design throughout the life of the patent, he began in the early 1940s to put more support behind the Roto-Rooter trademark through advertising in such nationally circulated publications as Better Homes and Gardens. Up to this point, the vast majority of advertising had been underwritten by individual operators.
Although World War II's raw material shortages stunted Roto-Rooter's expansion, postwar rural electrification and water works projects furnished seemingly endless growth potential. Eric Peterson, grandson of S.O. Blanc and author of a 1988 company history, characterized this period as "a time of unimaginable prosperity." By the mid-1950s, Roto-Rooter had operations in virtually every city with more than 100,000 people. The company established its first international franchise, in Mexico City, in 1945, and shipped machines to Brazil in 1952. In spite of these early efforts, international operations remained negligible until the 1970s.
Roto-Rooter reached a critical juncture in 1955, when the patent on the original device expired and the company was reorganized around the Roto-Rooter trademark. The central organization decided at this time to charge a higher franchise fee based on the number of people served in a given region. In spite of the upheaval, the firm lost less than 10 percent of its 300 franchisees. Roto-Rooter followed up the reorganization with a new national advertising campaign featuring the ditty that would help establish the brand as the country's most recognizable sewer cleaning service. Recorded by Captain Stubby and the Buccaneers, the snappy jingle, "Roto-Rooter, that's the name, and away go troubles down the drain," became one of U.S. advertising's most memorable and enduring tag lines.
Notwithstanding the outward appearance of success, several endemic problems began to manifest themselves during the 1960s. Perhaps the most fundamental of these was what Eric Peterson called a "management vacuum"; Roto-Rooter's founding executives had never really provided much guidance to franchisees or expected much more than fees from them, and, by the 1960s, many top leaders were reaching retirement age. At the same time, a growing body of antitrust law endangered the company's loose franchise system, the threat of takeover loomed large, and corruption in some operations (especially those in the Service Co. segment) endangered Roto-Rooter's future.
When founder S.O. Blanc died in 1964, his son-in-law, Russell Young, was elected to succeed him. (Blanc's own son, Milton, had not been significantly involved in the company.) The change in leadership, however, did not necessarily herald new management practices. The company moved into a new West Des Moines headquarters and built a new factory, but little else about Roto-Rooter changed in the late 1960s.
Revitalization of Roto-Rooter in the 1970s
Roto-Rooter's corporate lethargy ended in 1970, when another of S.O. Blanc's sons-in-law, Henry Peterson, advanced from secretary to president. Unlike most of the company's aging executives, Peterson brought varied outside experience in law and banking to the business. He hired new managers, instituted modern inventory controls and production schedules, automated the company's antiquated manufacturing methods, and spurred new product introductions.
Peterson also began to investigate lagging returns from the Roto-Rooter Service Company, which had been presided over (but not closely supervised) by Russ Young since its inception. The subsequent examination uncovered an organization rife with corruption; individual contractors were not reporting their gross sales accurately, sometimes keeping 90 percent of their receipts instead of the 50 percent they were contractually allowed to retain. Peterson oversaw a reorganization of the Service Company, converting it from a contractor basis to a more traditional service company with regional managers and local employees. At some point, he also changed the affiliated firm's name to Nurotoco Inc. ("new roto co"). The cleanup helped quintuple Nurotoco's profits within seven years and make it Roto-Rooter's primary revenue generator. In the meantime, the number of traditional franchisees had nearly doubled from 425 in 1969 to more than 700 by 1979.
Chemed's 1980 Acquisition of Roto-Rooter
Peterson had snatched Roto-Rooter from imminent decline, and by the end of the 1970s he was ready to retire. But no one in the next generation of the Blanc family had shown interest in accepting the mantle of leadership. Peterson had actually begun researching the sale of the company in 1975, but was impeded by litigation and reorganization concerns from concentrating on the issue. In 1980 Peterson was able to negotiate a $23 million cash/stock deal with Chemed Corporation.
Chemed moved Roto-Rooter's headquarters from West Des Moines to Cincinnati and imposed modern standards of franchise management on the corporate system. A revised franchise contract proposed by newly appointed President and CEO William Griffin opened franchisee books to corporate review, reserved right of first refusal for Roto-Rooter, and prohibited interfranchise competition. New across-the-board standards included 24-hour service, employee training in customer service, uniforms, and logo-emblazoned vehicles. Chemed also began to buy back licenses in the largest metropolitan areas, transforming them into employer-employee operations much like those of the East Coast's Nurotoco. By the end of the 1980s, Roto-Rooter, Inc. had purchased 39 such territories. Despite initial resistance from operators, these changes brought a higher level of standardization to the organization, benefiting the parent company, the franchisees, and their customers.
Chemed made a private placement of 15 percent of Roto-Rooter's stock in 1984 and raised $12.5 million in an initial public offering of another 23 percent stake the following year. The proceeds of these sales were used to expand Roto-Rooter's roster of services through internal growth as well as acquisition. Roto-Rooter had made its first reach into plumbing services in 1981; by mid-decade this sideline was contributing about 10 percent of annual sales. Chemed also expanded the subsidiary's industrial and municipal drain-cleaning services. But an initial venture into heating, ventilation, and air conditioning (HVAC) was not as successful. Roto-Rooter acquired Apollo Heating & Air Conditioning Inc., an Ohio service company, in 1986, but when the division did not pan out, it was sold to its management team.
Roto-Rooter experienced phenomenal growth under the guidance of its new parent. Sales multiplied from a mere $4.7 million in 1980 to $66.8 million by 1989, and net income grew to more than $5.5 million.
Independence for Chemed and Further Acquisitions: 1980s
The management of Chemed, meantime, armed with the thriving DuBois and Roto-Rooter businesses, decided to buy the remainder of W.R. Grace's 16.7 million shares of Chemed stock. This transaction, completed in March 1982, allowed Chemed to become a totally autonomous, independent corporation; its stock was listed on the New York Stock Exchange. Edward L. Hutton continued to serve as CEO of Chemed, having engineered the purchase of DuBois for Grace back in the early 1960s.
In October 1983 Chemed acquired National Sanitary Supply Company. Founded in 1929, National developed in much the same manner as DuBois. The company offered a variety of chemical products used to clean and maintain industrial, commercial, and institutional facilities. Goods produced by National over the years included floor finishes, trash liners, mops, buckets, brushes, paper and packaging products, and cleaning chemicals and equipment. By the time the company was purchased by Chemed, National had become the largest distributor of sanitary maintenance supplies in the United States. Just as it had with Roto-Rooter, Chemed took National public in 1986, retaining a controlling majority stake.
Even as Chemed developed into a successful independent organization, DuBois remained the cornerstone of its operations. Throughout the 1980s, Chemed grew as DuBois grew. DuBois manufactured and marketed hundreds of specialty chemical products--including paint strippers, cutting fluids, specialty lubricants, sanitation chemicals, and water treatment chemicals--for use as industrial cleaning and maintenance compounds. The company sold its product line to customers in a number of diverse industries. Public utilities, mining organizations, airlines, meat packers, breweries, dairy plants, railroads, metal finishers, publishing companies, hospitals, and retail establishments all purchased materials from DuBois. In the mid-1980s the company expanded its services to include laundry and linen supplies and uniform rentals. During this time DuBois expanded its product line to major overseas markets. By the end of the 1980s, the company had opened offices in Australia, England, France, Germany, Holland, Japan, Mexico, Saudi Arabia, Singapore, South Africa, Sweden, and Venezuela.
Chemed also established several new businesses during the 1980s. In 1981 Chemed established Omnicare, Inc., a company designed to supply pharmacy management services and distribute dental and medical supplies. Omnicare was divided into two operating divisions, the Sequoia Pharmacy Group and the Veratex Group. Sequoia provided services for more than 200 nursing homes, and by 1990 it represented over 20 percent of Omnicare revenues. The Veratex Group, a supplier of medical and dental products, grew even more rapidly. By 1990 the Veratex Group ranked third in the U.S. dressings and sponge market on the strength of its sales of over 800 different kinds of proprietary disposable paper, gauze, and cotton products to professionals working in the veterinary, medical, and dental fields.
National Sanitary Supply Company and Roto-Rooter also helped Chemed increase its revenues during the 1980s. By the early 1990s, National reported over 150,000 standing accounts across the country, with 22 distribution centers in 14 states. The performance of Roto-Rooter was even better. In 1990, a year when revenues from the company's plumbing services increased 26 percent, the firm introduced a revolutionary drain and sewer cleaning product that broke down organic waste by biological means and converted it into water and harmless carbon dioxide. Roto-Rooter also made significant inroads toward expanding its base of operations through a franchising agreement that allowed the company to distribute products in Japan.
Shifting Focus to Marketing and Service-Oriented Businesses: 1990s
In the early 1990s, management at Chemed decided to concentrate on marketing and service-oriented businesses, rather than capital or production-intensive manufacturing. Although DuBois was the largest revenue and profit-generating division within Chemed, with sales of $275 million in 1990 and 2,800 employees, management thought it best to sell its flagship operation in order to refocus the company's priorities. As a result, DuBois was sold for $243 million to Molson Companies, Ltd., the largest brewery in Canada and the sixth leading beer maker in the United States. Molson immediately combined DuBois with its Diversey Corporation subsidiary.
Chemed implemented a comprehensive restructuring program with the money garnered from the sale of DuBois. The revenue was immediately reinvested in the company's growing healthcare business. Chemed sold off Omnicare as well, but retained its highly profitable Veratex Group. Sales for Veratex amounted to over $95 million in 1994, but growing competition within the industry and significant changes in the healthcare industry forced the Veratex Group to reduce its workforce and cut operating expenses.
Money from the sale of DuBois was also funneled into the appliance repair service interests of Roto-Rooter. From 1991 to 1993, Roto-Rooter acquired three businesses in Florida and Arizona that offered residential customers annual maintenance contracts for many major repairs, ranging from heating and air conditioning systems to major appliances and plumbing. These operations were combined in 1994 under the Service America trademark.
Roto-Rooter's growth strategy in the early 1990s for its plumbing-related services included expansion of its customer base to include restaurants and motels. Roto-Rooter increased its overseas operations as well. Entering the mid-1990s the company was an industry leader in Canada and operated 17 franchises in Japan. In 1994 the company expanded the number of its service technicians by 15 percent. All this activity contributed to greater revenues for Roto-Rooter. From 1993 to 1994, the company reported a 20 percent growth in plumbing revenues. But Roto-Rooter enjoyed steady growth for a number of years. From 1984 to 1994, for instance, revenues exploded from $28.2 million to $171.9 million. By 1994, meantime, Roto-Rooter had purchased 80 of its largest franchisees. The company still had 550 independent franchisees, but these businesses contributed only $6 million of the 1994 revenues.
In January 1994 Chemed acquired Patient Care, Inc. for about $20.6 million. Founded in 1974 to provide comprehensive home-healthcare services in the New York, New Jersey, and Connecticut areas, Patient Care had a workforce that included more than 4,500 nurses, home healthcare aides, speech therapists, physical therapists, occupational therapists, medical social workers, nutritionists, and other healthcare workers. Regarded by many as one of the anticipated solutions to the ever increasing costs of in-patient health services, the $20 billion homecare industry had grown rapidly in the early 1990s. Mindful that the homecare market was extremely fragmented, Patient Care claimed that its own comprehensive line of healthcare services offered better resources and was more cost-effective than smaller home health agencies.
Continuing its shift to services, Chemed in July 1995 sold its Veratex Retail division, which sold medical products by mail order and through catalogs, to Henry Schein, Inc. The Veratex Group itself, renamed the Omnia Group, was then sold to Banta Corporation in September 1997 for $50 million in cash and $2.3 million in deferred payments. That same month, Chemed sold its majority-owned subsidiary National Sanitary Supply to Unisource Worldwide, Inc. for $138.3 million. These divestments left Chemed with three main units: Roto-Rooter, Patient Care, and Service America Systems, Inc. Another result was a large drop in revenues for Chemed, from $683.8 million in 1996 to $341.7 million in 1997.
In the meantime, Chemed in mid-1995 made an offer to buy the 42 percent of Roto-Rooter it did not already own. But the offer, which involved the swapping of Roto-Rooter stock for that of Chemed, valuing the former at $35 per share, was rejected as inadequate by a special committee of the Roto-Rooter board. Chemed abandoned this bid, only to return the following year with a tender offer of $41 in cash per share. This bid succeeded, with Chemed reacquiring full control of Roto-Rooter in September 1996 for a total price of about $102.1 million.
During the late 1990s all three of Chemed's units grew through acquisitions. For example, Patient Care acquired a number of home healthcare firms, including ones located in Stratford, Connecticut; Columbus, Ohio; Washington, D.C.; and Chicago. The bulk of the purchases, however, were made to grow the Roto-Rooter business. Franchisees continued to be bought out, and the company beefed up the plumbing-repair side of its business through acquisitions. Although Roto-Rooter's market share in the highly fragmented U.S. plumbing-repair industry was only around 2 percent--compared to about 17 percent in the much smaller drain-cleaning sector--plumbing repair by the late 1990s accounted for about 40 percent of Roto-Rooter's revenues. The plumbing business was growing smartly, its revenues jumping 20 percent per year.
Roto-Rooter at the Fore, Early 2000s and Beyond
Edward Hutton had led Chemed through its many transformations, and he finally gave up the CEO post in May 2001 at the age of 82. He remained deeply involved in the business, however, as company chairman. Kevin J. McNamara, who had served as company president since August 1994, was named president and CEO. It was McNamara, then, who oversaw the final steps in the transformation of Chemed from a conglomerate to a company focused on service businesses, principally Roto-Rooter. In October 2002 Chemed sold Patient Care to an investor group for about $70 million. As part of an overall restructuring, Service America exited from the Tucson, Arizona, market, making Phoenix its only place of business outside of Florida. The restructuring involved Roto-Rooter as well. Roto-Rooter pulled back on its move into the plumbing sector, getting rid of its non-Roto-Rooter-branded plumbing operations as well as its underperforming HVAC businesses. Plumbing services would continue to be offered through the Roto-Rooter brand operations. Chemed also stepped up efforts to buy out more Roto-Rooter franchisees. This restructuring followed a poor showing for Chemed in 2001, when sales were hurt by the economic downturn. The company reported a net loss of $10.4 million on revenues of $477.1 million.
Thanks to the divestments, revenues fell further in 2002, settling in at $314.2 million. Fully 80 percent of that figure was attributable to Roto-Rooter. During 2002 Roto-Rooter diversified by launching a branded line of drain-care products through more than 3,500 retail outlets, including grocery stores and the three main U.S. discounters, Wal-Mart Stores, Inc., Target Corporation, and Kmart Corporation. The products were not expected to provide huge revenues for the company, but were rather envisioned as advertising conduits for the Roto-Rooter brand; proceeds from the sales were to be earmarked for advertising and marketing the plumbing and drain-cleaning services of Roto-Rooter.
In May 2003 Chemed seemed to have settled on a future course as primarily a plumbing and drain-cleaning company when shareholders approved the change of the firm's name to Roto-Rooter, Inc. It came as somewhat of a surprise, then, when Roto-Rooter announced in December 2003 that it had signed an agreement to take over Miami-based VITAS Healthcare Corporation, operator of 25 hospice programs for terminally ill patients in eight states. VITAS had been founded in 1978 as the single-site Hospice of Miami and had subsequently expanded beyond Florida as Hospice Care, Inc. Chemed made its first investment in the hospice company in 1991, eventually owning a 37 percent stake in the firm, which adopted the VITAS name in 1992. By its fiscal year ending in September 2003, VITAS had more than 5,700 professionals caring for more than 7,900 terminally ill patients on a daily basis; the firm recorded revenues of $420 million. Roto-Rooter offered to pay about $410 million in cash to acquire the 63 percent of the privately owned VITAS it did not already own. Roto-Rooter officials said that a public offering of VITAS stock was "very likely" following the acquisition, which was expected to close by March 2004. As this latest twist in the convoluted history of Chemed/Roto-Rooter unfolded, it was certain to be interesting to see how long the company's latest foray into the healthcare field lasted.
Principal Subsidiaries: Roto-Rooter Canada, Ltd.; Roto-Rooter Corporation; Roto-Rooter Management Company; Roto-Rooter Services Company; R.R. UK, Inc.; Service America Systems, Inc.
Principal Competitors: The ServiceMaster Company; UNICCO Service Company; Lennox International Inc.