Computer-generated Paper Gladdens A Records-storage Firm Pierce Leahy Of King Of Prussia Leads In The Management Of Printed Data, And Keeps Growing.

Posted: September 29, 1998

Typewriters have given way to word processors. ``Snail mail'' is losing out to e-mail. But, every year, offices churn out more and more paper.

Regardless of how information is generated or transmitted, it seems, people still find comfort in having it on hard copy.

Nobody is happier about that than the folks at Pierce Leahy Corp. in King of Prussia. Pierce Leahy, which went public last year, is the nation's largest records-management firm.

The company, which bills itself as ``North America's file cabinet,'' offers storage and same-day or next-day retrieval of records that companies and government agencies don't need in their offices but can't, or don't wish, to discard. It claims the state of New Jersey, the city of Philadelphia, and half the Fortune 500 companies among its clients.

As a result of growth from new and existing clients and from the acquisition of 55 smaller storage companies, Pierce Leahy has increased its revenues from $73 million in 1993 to a projected $260 million this year.

The company's growth has been so furious that it is running out of space at the 45,000-square-foot headquarters in King of Prussia - only six years after moving there from smaller quarters in Folcroft. The company will break ground in spring for an 80,000-square-foot facility in Collegeville with room to expand to 160,000 square feet.

The company increased its sales force from 72 to 120 last year and expects to more than double its headquarters workforce, now 200, within five years. Total employment, including its 225 archive sites in 80 North American markets, is 3,000.

The company now stores 80 million cubic feet of records - the equivalent of more than 13 million four-drawer file cabinets - more than four times its volume in 1993. Although it stores all media, including computer tapes and microfilm, paper records still generate 94 percent of revenues.

``All indications are that this digital society is actually promoting more paper,'' says CIBC Oppenheimer analyst Laura Dopman.

Pierce Leahy began in 1957 as L.W. Pierce Co. The company expanded primarily through internal growth until 1990, when it doubled with the acquisition of Leahy Business Archives.

To fund its ambitious expansion plans, the company raised $95 million in a public offering last year. Pierce family members, however, still control the board and 54 percent of the stock. (A Pierce Leahy spokesman declined a request for an interview, saying the company's officials were too busy.)

With 2,400 companies sharing $1.1 billion in revenues, the document management business is highly fragmented. The only national players are Pierce Leahy and Iron Mountain Inc. of Boston, which each command about 23 percent market shares. Iron Mountain has a smaller presence in paper records but is larger than Pierce Leahy in niches such as electronic records and medical records.

Pierce Leahy's stock, which debuted in July 1997 at $18 per share, peaked at more than $30 in October before a disappointing earnings announcement sent it tumbling to $15. But it has crept back steadily since then, closing yesterday at $21.125.

Analysts for Paine Webber and CIBC Oppenheimer predict it will hit $31 by the end of 1999. Salomon Smith Barney sees it rising to $35.

CIBC's Dopman says the stock is a good defensive play in a turbulent market because its revenues are locked in with long-term storage contracts.

Analysts also say its bar-coding, 24-hour customer service center and proprietary computer system allow the company to offer same-day or next-day retrieval and to remain the low-cost leader.

The company faces some risks: Because of its heavy borrowing - long-term debt has increased to $513 million from $277 million at the end of 1997 - the company's fortunes could be adversely affected by a rise in interest rates. And its growth could slow if competition with Iron Mountain and others bids up the asking price for takeover targets, as it did last year, or if office workers do break their hard-copy addiction and the ``paperless'' office ever becomes a reality. Moreover, it has shown a profit in only one year since 1993.

But Paine Webber's Walter Kirchberger says that the company should be valued based on its cash flow rather than earnings, which suffer from amortizing the cost of acquisitions.

``You are setting up a scenario which ought to result in a fairly long-term flow of periodic rental payments for the storage of those documents,'' Kirchberger said. ``It's not reasonable or practical to judge the long-term opportunity on the basis of the short-term income stream.''

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