Merger Man : Charles Laverty Parlays the Losing Davstar to Tenfold Growth, Which Is on the Verge of Profitability as Urohealth in Costa Mesa. But Some Analysts Wonder if the Charismatic CEO Will Deliver on His Promises.
Charles A. Laverty succeeds by sheer force of personality.
When he took over a small biomedical outfit named Davstar last year, the company had losses greater than sales and was a target of shareholder litigation and a government investigation into possible securities laws violations.
Since then, Laverty not only settled much of the legal mess, but even talked five other companies into merging with Davstar to form a company more than ten times its size called Urohealth.
He has the cunning and swagger of a mid-1980s Wall Street deal maker--and even dresses the role in a blue shirt with contrasting white collar and monogrammed cuffs.
Julian Osbon, chairman of one company he is acquiring, likens Laverty to a Pentecostal preacher: “When you first meet him, you keep telling him, ‘No.’ Then, you’re thinking, ‘Maybe.’ Then you end up saying, ‘Yes.’ ”
Laverty is a man on a mission. He sees a future in treating those unmentionable problems of human plumbing, female incontinence and male impotence.
He figures industry sales of vacuum erection devices, adult diapers and the like could run into the billions yearly. Though only a minority of impotence and incontinence sufferers seek treatment for their common conditions, he knows more might be persuaded. And maturing Baby Boomers could boost the market as they enter the time of life when such problems often occur.
Laverty is now on the prowl for more companies to buy. On any given day, he may hop a plane to press one more little outfit into selling out.
Hard-working, persistent, and ambitious, he has quickly emerged as one of Orange County’s more acquisitive CEOs. In a recent interview, he insisted: “We are on the verge of really turning this company around.”
But management experts wonder if he can deliver on his promises for Urohealth. A supreme salesman, Laverty exhibits the charms and weaknesses that come with the vocation.
He can be so charismatic that another of his merger partners, Minneapolis-based Dacomed Corp., mentioned Laverty three times in its merger prospectus as a reason shareholders should approve the deal. His experience raising capital, his marketing smarts, and his overall industry background were each separately noted.
Assuming he wraps up the deals he has announced, Urohealth Systems Inc. will have annualized sales of about $60 million. That compares with Davstar Industries Inc.’s $4 million for the year ended June 30, 1994. And while Davstar’s cash flow ran negative for years, company officials expect Urohealth’s will turn positive in a few months.
But Laverty tends to over promise, say people who have dealt with him. He has been known to lash out at associates.
He once pounded his fist so hard that he joked five years later that it still hurt, said a former subordinate.
On a recent flight to New York, Laverty, who is 50, puzzled in frustration over instructions for a hand-held computer for more than half an hour, then threw them against the seat in front of him, said his chief financial officer, James Johnson, who was sitting next to him.
Johnson remarked: “Charlie, my 3-year-old does that!”
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Laverty, a banker’s son, believes life revolves around work.
The New York native had a paper route when he was 10 and soon had kids subcontracting from him. Though he wanted to play baseball professionally, he realized while majoring in physical education at the former Parsons College in Iowa that he wasn’t good enough.
At 24, he talked two bar owners into backing his plan to open an English pub on Long Island, he said. Later, he sold medical products, worked his way up the management ranks in that industry, and eventually attracted national press as the executive hired to revive Curaflex Health Services Inc., a former Rancho Cucamonga-based provider of home-infusion therapy.
At Curaflex, Laverty wasn’t above calling somebody in the middle of the night with a business matter. But his energy and enthusiasm fired the troops. And he inspired loyalty and hard work.
Cassandra Harris, an executive who worked for him at Curaflex, exemplifies his model employee in her dedication. Harris was nine months’ pregnant when she pulled together a national sales conference last year at the Ritz-Carlton in Laguna Niguel. During opening-night festivities, Harris went into labor and left to give birth.
Harris, who followed Laverty to Urohealth, said, “If you are one of these people who thrive on change, you’re going to love working with him.”
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Laverty clearly wasn’t satisfied with the way things worked out at Curaflex. He won one of Inc. magazine’s lesser annual national awards in 1992 as Turnaround Entrepreneur of the Year for restructuring the company and making it profitable.
Still, at the awards’ ceremony in Palm Desert, when Don Ecker, a managing partner at Ernst & Young, congratulated him, Laverty responded: “I’m so excited I can’t see straight, but this is step one,” Ecker recalled.
Laverty has his heart set on one day winning the Entrepreneur of the Year Award, Ecker said, complete with his picture on Inc.’s cover.
What’s more, Wall Street analysts recalled how Curaflex failed to measure up to expectations. The company went public in March, 1992, with its stock opening at $13.75 a share. Then, amid severe pricing pressure throughout the industry, it retreated to the $4-to-$5 range. There it languished until Curaflex merged last year with other companies to form Denver-based Coram Healthcare.
Analyst Randall Huyser, at New York-based Furman Selz’s San Francisco office, noted:, “Curaflex was a chronic under performer in terms of both earnings and stock price.”
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Early last year, Laverty briefly seemed to have a shot at proving himself as a leader of a sizable firm when he was expected to become CEO of Coram. However, sources say that principals of some of the other firms chose James Sweeney, an industry heavyweight, instead.
Laverty, assigned a senior vice-president’s post at Coram, left within a couple of months. Lawrence Goelman, a Urohealth director, who knows Laverty and Sweeney, said, “My sense was, where [Laverty] wanted to take Coram and where other people wanted Coram to go weren’t in sync.”
Laverty aims to outdo himself at Urohealth. Here, he relishes the chance to build something out of a company that was virtually nothing a year ago.
Whether in the air or on the ground, he runs the company by telephone, laptop computer, and an executive binder filled with acquisition targets. Leafing through his binder, he said, “I’m looking at eight to 10 at any one time.”
Laverty woos his targets with a strong sales pitch. He tells the owners of the mostly privately held companies he is after that they will benefit by exchanging their illiquid holdings for publicly traded Urohealth shares.
He impresses them too as a capable, fun guy to have as a boss. Some find an appealing “little boy” quality in him--and his personal compulsion for collecting cars endearing.
Consider his effect on Gerald W. Timm, now Urohealth’s vice-chairman, who gave up a controlling position in Minneapolis-based Dacomed to become a minority shareholder in a publicly traded company with headquarters halfway across the country.
“I made a leap of faith that Charlie will hold to his promises and give me the opportunity to develop the technology that I think could be a grand slam home run in this industry.”
Beyond that was the fun of working with Laverty.
Timm, a scientist, noting that a “big boy” dominates his own personality, said, “I could use a little more of my little boy.” Since the two companies’ merger, Timm said,he has been tagging along on Laverty’s deal-making trips.
Davstar’s quick merger with Dacomed made a few heads spin in the investment community. Thomas Gunderson, an analyst with Piper, Jaffray & Hopwood Inc., in Minneapolis, notes that Dacomed talked on and off with various merger partners for more than a decade. “Charlie comes into Urohealth in September [last year] and by December he’s got a deal,” said Gunderson.
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Some of the best--and worst--of Laverty came out in talks with owners of his star acquisition target, Osbon Medical Systems, an Augusta, Ga.-based maker of vacuum erection devices.
When the Osbon family learned that their company, with expected sales of more than $25 million this year, would comprise half of Urohealth’s sales and most or all of its profits, they got demanding in negotiations.
Unfortunately for Laverty, he lost his temper in one heated meeting with the Osbons and their representatives, sources said. At one point, Laverty told Mark Chancy, their investment banker, “I don’t like you and I never have liked you,” they said. Though Laverty apologized half an hour later, a source said the incident gave the Osbons pause about whether they wanted Laverty as their leader.
They also wondered about promises he wouldn’t keep. The first time he met with them, he insisted he would be willing to move Urohealth to Augusta, said James Osbon, the company’s president. Later, Osbon said, Laverty’s investment banker backpedaled for him, saying, “Charlie says a lot of things he doesn’t really mean.”
But the persistent salesman, Laverty refused to let the Osbon deal die. One day in August, while company chairman Julian Osbon was vacationing at Pawley’s Island, on the South Carolina coast, Laverty invited himself to stay overnight at Osbon’s beach house.
He flew into Charleston airport, rented a limousine to drive him 100 miles to the beach house, and, arriving at 6 p.m., worked with Osbon to close the deal. At midnight, they shook hands, agreeing that Urohealth would remain in California, but Osbon would get to name two board members instead of one.
At 5:20 the next morning, Osbon was amazed to find his hard-working guest in the kitchen, with the coffee on, dressed for battle in his business suit, and waiting for an airport limo, so he could make an appointment in New York later that day. “I was impressed,” said Osbon.
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Laverty clearly has made believers of people around him. But Urohealth has yet to turn the corner financially. And he has still got a sales job to do with investors.
Urohealth closed at $3.625 on Friday, up 12.5 cents, on the American Stock Exchange. Rick Rayome, director of a small urology clinic that Urohealth acquired for stock, said that, with every acquisition Laverty has announced, “We’re always extremely optimistic that the stock will jump to $20 the next day . . . hasn’t done that.”
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The Consolidator
Charles Laverty has assembled five companies under the name Urohealth Systems, in the process changing the former Davstar Industries from a $4.5-million sales entity to a $60-million consortium. A look at the man and the new company:
* Charles A. Laverty
Title: President and CEO
Company: Urohealth Systems Inc.
Age: 50
Background: Former chairman, president and chief executive of Curaflex Health Services, a Rancho Cucamonga-based firm providing home-infusion therapy
Awards: Inc. Magazine’s 1992 Turnaround Entrepreneur of the Year
* Urohealth Systems Inc.
Former name: Davstar Industries Ltd.
Founded: 1985, name changed to Urohealth in July
Headquarters: Costa Mesa
Employees: 150
Products: Disposable urological medical products
1994 sales: $4.5 million
Estimated 1995 sales: $60 million
Source: Times reports; Researched by JANICE L. JONES/Los Angeles Times
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Urohealth’s Buying Spree
Costa Mesa-based Urohealth Systems has acquired five companies since Charles A. Laverty became CEO in 1994. Details on the purchases:
* Osbon Medical Systems Ltd.
Acquired: September, 1995
Price: $60 million in stock
Headquarters: Augusta, Ga.
Products: Impotence treatment devices
* Dacomed Corp.
Acquired: December, 1994
Price: $12.4 million in stock
Headquarters: Minneapolis
Products: Medical products for incontinence and impotence
* Advanced Surgical Inc.
Acquired: September, 1995
Price: $12 million
Headquarters: Princeton, N.J.
Products: Surgical instruments
* Urohealth Systems Inc.
Acquired: January, 1995
Price: Undisclosed
Headquarters: Louisville, Ky.
Service: Outpatient clinic for incontinence care
* Allstate Inc.
Acquired: July, 1995
Price: $2.1 million in stock
Headquarters: Minneapolis
Products: Incontinence products
Source: Times reports; Researched by JANICE L. JONES/Los Angeles Times
