Plumber/15″/dt1st/mark2nd

By JOHN BRINSLEY

Staff Reporter

Two men who consolidated the heating, ventilating and air conditioning industry are now setting their sights on the U.S. plumbing sector.

And they’ve enlisted L.A.’s most famous plumber to lead the effort.

Mike Diamond has been recruited to run Plumbers’ Success International LLC, a consulting company for residential plumbers that will help them to eventually sell their businesses.

PSI is the brainchild of St. Louis-based venture capitalists Jim Abrams and John Young, who used a similar model to consolidate the HVAC industry in the early ’90s. The company is based in St. Louis, though Diamond will run it from L.A.

Diamond, whose Mike Diamond Plumbing, Heating & Air service centers in Los Angeles and Orange counties have over $16 million in combined annual sales, says the goal of the new venture is to help residential plumbers streamline their operations, then buy them out and form a consolidated company that would go public.

Before creating PSI, Abrams and Young started a venture capital company, VenVest Inc., that has raised $6 million. An initial $300,000 of that was invested into PSI to market the service.

Plumbers who participate would invest about $40,000 over three years, and if they haven’t increased the value of their business in that time by $100,000, they’ll get a full refund. After that, they will have the option of selling their businesses to a VenVest-funded entity that has yet to be created.

“There are a lot of good contractors, but very few of them are good businessmen,” Diamond said. “They’re hands-on, but not good at being profit makers. If in three years you spend $40,000 and your company is worth $100,000 more, your life is going to be easier.”

Diamond should know. He started his business 23 years ago at the age of 19, working out of his parents’ garage with one truck. Ten years ago he had one location and 20 trucks. He now has nine locations with more than 100 trucks.

There are too many plumbers in the same market barely making ends meet, Diamond said. Consolidation is inevitable.

“The industry needs to get more professional. You need to be part of a big group today to survive,” he said.

Joe Sroka, an analyst at ABN AMRO in Chicago, estimates the value of the plumbing, HVAC and electrical industries at well above $100 billion.

In the early ’90s, Abrams and Young helped found Contractors Success Group, an HVAC consulting firm that uses management techniques similar to those that will be taught to plumbers by PSI. The two partners later formed Service Experts Inc. to buy out clients of Contractors Success Group. Service Experts went public in 1996 and in 1998 had $408 million in revenue. It has more than 100 HVAC service centers in 36 states.

“These two are taking an industry that has tremendous potential and adding management technology that has been proven,” Sroka said.

Young says the company is already attracting interest after sending direct-mail advertisements around the country. “We’re being swamped with phone calls,” Young said. “In nine or 10 days, we’ve received 400 inquiries.”

Young said he and Abrams approached Diamond with the idea for PSI in January, and that Diamond quickly got over his initial skepticism and signed on.

“Jim and I thought Mike was exactly the right person we wanted to be associated with,” Young said. “He does everything right.”