Encompass Reorganizes as Residential Contractor

BY ROBERT P. MADER Of CONTRACTORs staff HOUSTON Encompass Services Corp., at one time the largest mechanical contractor in the country, announced in March that it will emerge from bankruptcy as a residential plumbing and HVAC contractor based out of Dayton, Ohio. The firm has sold, or is in the process of selling, its commercial operations back to the original owners, to the managers who had been

BY ROBERT P. MADER

Of CONTRACTOR’s staff

HOUSTON — Encompass Services Corp., at one time the largest mechanical contractor in the country, announced in March that it will emerge from bankruptcy as a residential plumbing and HVAC contractor based out of Dayton, Ohio. The firm has sold, or is in the process of selling, its commercial operations back to the original owners, to the managers who had been running them or to other contractors.

Encompass was ranked as the largest mechanical contractor in the country in last year’s Book of Giants with 2001 revenues of nearly $1.75 billion (May 2002, pg. 18).

The debt-burdened company announced in October that it was trying to put together a “prepackaged” Chapter 11 bankruptcy filing, but was unsuccessful selling that plan to creditors (February, pg. 1). The company also announced in January that it had ousted CEO Joseph Ivey, one of the founders of Group Maintenance America Corp., a predecessor to Encompass.

Encompass announced its residential direction in March by filing its Joint Plan of Reorganization and Disclosure Statement with the U.S. Bankruptcy Court for the Southern District of Texas.

The plan contemplates that the Residential Services Group of Encompass, which specializes in installing and servicing HVAC and plumbing systems in newly constructed and existing homes, will be reorganized as a new entity. The new company will be headquartered in Dayton, Ohio, with operations in nine states.

Those states are Texas, Kansas, Alabama, Florida, Kentucky, Indiana, Ohio, Maryland and Virginia.

The plan of reorganization is supported by an investment from Wellspring Capital Management, a New York-based private equity firm. The agreement will result in Wellspring and the Residential Services Group management team owning all outstanding shares of the new entity established to carry forward the business.

“Upon confirmation of the reorganization plan, our new company will be focused exclusively on residential services,” said Eric Salzer, who was named chief executive officer of the new organization. “We see tremendous potential for developing this business going forward.”

“Upon confirmation of the plan, the new company will be positioned for solid growth and profitability with a well-financed balance sheet,” said Carl Stanton, a partner in Wellspring Capital Management. “This business has an experienced management team, a diversified customer base and a proven financial track record. We are excited to be associated with the Residential Services Group.”

Encompass said that it has completed the sale of substantially all of the company’s assets outside of the Residential Services Group while the case has been pending.

“We are pleased to be submitting this plan to the Court,” said Michael F. Gries, chief restructuring officer of Encompass Services. “We have made significant progress with our restructuring efforts in a short period. We expect to emerge from Chapter 11 in the second quarter of 2003.”

Hearings on the approval of the disclosure statement and confirmation of the plan are tentatively scheduled for April 9, 2003, and May 21, 2003, respectively.

The full text of the draft Joint Plan of Reorganization and Disclosure Statement is available at www.encompass.com and at the Securities and Exchange Commission’s website at www.sec.gov.

The Residential Services Group provides HVAC, plumbing and other contracting services primarily in single family, low-rise multifamily housing units and small commercial buildings. Its services include new installation and maintenance, repair and replacement work. The Residential Services Group has approximately 2,300 employees.

Wellspring Capital Management LLC is a New York-based private equity firm. The firm is focused on acquiring companies where it can contribute management expertise, operating and financing strategies, and capital.