Rx for an Upstart

By BARBARA MARSH

July 1, 1998 12 AM PT

TIMES STAFF WRITER

Frank P. Schyving starts his day with an easy stroll on a treadmill.

But the portly executive sets a breakneck pace at the medical distributor he started two years ago in Laguna Hills.

His Perigon Medical Distribution Corp., which supplies bandages, instruments, drugs and other items to doctors’ offices, nursing homes and home care agencies, is one of the fastest-growing Southland companies in the consolidating health care industry.

Schyving is building his company by acquisitions, targeting small, well-managed distributors around the country that face increasing competition from giant outfits. In less than a year, he has acquired five companies with 150 employees and combined annual sales of about $41 million.

He’s often out of town talking to owners of possible acquisition targets, financiers and employees.

During a recent interview in his Laguna Hills office, an associate drew Schyving aside to tell him a Bay Area venture firm had just offered to invest a few million. Schyving, pulling his hand into a clenched fist, shouted, “Yes!”

At 58, Schyving has big ambitions, which means the pressure at Perigon won’t let up any time soon.

Schyving’s business strategy is uncommon in a market dominated by huge rivals. He aims to boost annual company sales to $250 million in five years and take the company public.

To do so, he must balance its rapid growth with its ability to land enough financing for acquisitions and smoothly absorb the new companies. And he must outfox big competitors--McKesson Corp. of San Francisco, Physician Sales & Service of Jacksonville, Fla., and Henry Schein Inc. of Melville, N.Y.--that have much bigger bags of capital for acquisitions.

Vivek Khanna, a Smith Barney analyst in New York, says it won’t be easy for Schyving to line up capital at attractive rates. Perigon’s big competitors “all have access to cheaper capital than he does.”

Indeed, Schyving (pronounced SHY-ving) is finding it takes longer than expected to raise money. He initially received $18 million from venture capitalists and had hoped to land another $25 million to $30 million in new financing by March.

But March came and went. It took him another month to land $8 million in new venture capital. This week, he finally lined up an additional $22 million in bank financing.

In the meantime, one company he wanted to buy pulled back from negotiations, at least temporarily. Its managers won a big contract and figure the company is now worth more than Schyving planned to pay, he says.

Did the financing delay cost him the deal? “Maybe,” Schyving allows.

Clearly, Perigon’s appetite for capital is considerable. The company is socking lots of money into corporate headquarters. It’s a risky move Schyving expects will eventually pay off, because the company will have the sort of staff and systems in place that public investors will eventually be looking for.

His executive team consists of managers used to being paid corporate salaries. Perigon’s freshly painted headquarters were recently doubled in size to 3,600 square feet. The budget for a new companywide computer system is $4.5 million.

“To make sure things happen quickly, you invest early as a private company, get your infrastructure in place and, as you buy additional companies, you add value more quickly,” he says.

Accordingly, Schyving faces pressure to buy companies fast enough to support the overhead.

Ralph Sabin, who heads an Irvine-based venture firm that invested $8 million in the company, says, “We are constantly struggling with the issue of the rate you build it.”

Still, Sabin and others involved in Perigon have few doubts about Schyving.

“Frank knows the blocking and tackling necessary to make a health care company work,” Sabin says. “He’s low-key. He’s got a sort of Columbo personality. He grows on you.”

Schyving draws on connections from his long career in the health care industry. He’s a former vice president of operations for American Hospital Supply Corp., a giant hospital supply house that was acquired by Baxter International.

Later, Schyving joined other executives in a management buyout that created the former Homedco Group Inc. Three years ago, Schyving took a buyout on his contract and options as Homedco’s president when Homedco merged with Abbey Healthcare Group Inc. to form Apria Healthcare Group Inc.

Schyving won’t disclose the value of his buyout, but noted, “I could have retired.” After a few months of home remodeling and golf, however, he got bored--and invested $250,000 to start Perigon.

The pace of it all hit fast. “I don’t think I really appreciated the level of detail involved in starting a company--picking out office furniture, buying employee benefits, a fax machine, the telephone system,” Schyving says.

He quickly staffed up, spreading the pressure to management recruits charged with helping acquired companies assimilate. Wayne Tyo, hired as controller last summer, recalls, “Day one, I’m hired. Day two, I’m on a plane. Day three, I’m counting inventory in a warehouse so I can learn the business.”

Tyo stared at items he had never seen before--paper for exam tables in 20 colors (with little animals for pediatricians), doctors’ instruments and the like. “Many of the things looked painful,” he says.

Meanwhile, Schyving schmoozed with owners of companies he wanted to buy. He persuaded them to sell to Perigon by promising they’ll have jobs running the companies they’ve built and a voice in management.

But he can’t let democracy run rampant.

“It’s very hard to please everybody, especially people who are strong ex-owners of their own companies, who, for years, haven’t had to listen to anybody except their banker and their wife,” says Terry Johnson, the general manager and former owner of Perigon’s branch in Casper, Wyo.

Johnson, for one, objected that Schyving’s proposal for a corporate-wide policy on employee vacations, holidays and sick days was “too liberal.” The proposal gave employees five sick days and three personal days a year; two weeks’ vacation after a year, three after five, and four after 10.

“I don’t need to give four-week vacations and all these personal days and sick days,” Johnson says.

After listening to heated discussion at a managers’ meeting, Schyving changed the proposal slightly. Employees would start earning vacation days after six months on the job and accumulate two weeks’ vacation by the end of 18 months. All other aspects of the proposal stuck, with Schyving dispatching his human resources manager to smooth feathers at the branches.

As the stresses pick up, Schyving tries to pace himself.

When in town, he likes to sneak away occasionally to play with the grandkids at a nearby park. And he takes pains to arrive at the airport an hour before his flight, saying:

“I don’t like to run to planes.”

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Supplier Growing

Perigon Medical Distribution Corp., a supplier of surgical and medical products to physicians, home care providers and diagnostic laboratories, grew quickly over the last year through acquisitions:

Perigon Profile

Headquarters: Laguna Hills

Offices: 8

Employees: 150

Approximate annual revenue: $41 million

Five Key 1997 Buys

Diagnostic Marketing Corp.

Home office: Englewood, Colo.

Annual revenue: $11 million

Wyoming Medical Supply Co.

Home office: Casper, Wyo.

Annual revenue: $2 million