U.S. Dry Cleaning Inc. (fka UDRYQ)

[declined22]

One drycleaning chain grows, another shrinks







While an East Coast drycleaning chain is on the decline, a West Coast chain is on the rise.
As Zoots drycleaning was selling off or closing most of its branches, California-based U.S. Dry Cleaning Corp. continued its expansion, reaching the East Coast with the acquisition of some former Zoots properties and entering a merger agreement last month with Prestige Cleaners in Knoxville, TN.
The acquisition of the Portsmouth, VA-based Zoots operations for approximately $1.9 million puts U.S. Dry Cleaning on track to achieve its goal of a $100 million revenue run rate by the end of 2008, according to Robbie Lee, founder and CEO of USDC.
William Wall, formerly of Zoots and now general manager of USDC Portsmouth, Inc., said, “We are very enthusiastic about joining the USDC family and excited to be part of the effort to create the nation’s premier drycleaning chain.”
Meanwhile, Prestige Cleaners will continue to operate under its own name after merging with the publicly traded company. Its president and sole stockholder, Eddie Mannis, will become southeastern regional vice president of USDC. Administrative and training functions for USDC’s eastern region will be based in Knoxville.
USDC agreed to pay Mannis $3.5 million in cash and $2.8 million worth of USDC stock, according to an SEC filing.
“USDC first approached me about 14 months ago,” Mannis said. “I evaluated the situation for a considerable period of time. Now the timing is right for a merger, and it’s a great opportunity for Prestige and my employees.”
Prestige started in 1985 with one store and three employees and grew to nine locations and more than 160 employees and has annual revenue in excess of $7 million. The merger with USDC will provide increased operating efficiencies and access to capital, Mannis said. Within the next three years, he expects Prestige to add locations in the Knoxville area.
USDC’s Lee said the acquisition will increase operating cash flow and bring annualized revenue to approximately $30 million, three times that of last year.
“I have great respect for Eddie Mannis, who has built a very successful and market-leading business,” Lee said. “Mr. Mannis will be instrumental in bringing some of his best practices to our other operations.”
U.S. Dry Cleaning’s goal is to create a premier national chain in the drycleaning industry by rapidly acquiring profitable, market-leading operations. Each acquisition target is expected to be self-sufficient with field management remaining in place to ease the assimilation.
A year ago, the company completed a $6.1 million initial public offering and trades on the Over-the-Counter Bulletin Board under the symbol UDRY.
In addition to the recent additions, the company’s web site (www.usdrycleaning.com) lists locations in California and Hawaii.
Zoots diminished
Meanwhile, the Zoots name lives on in New England after Rick Simoneau and Trish O’Leary, two former Zoots managers, purchased the rights to the company and moved its headquarters to Brockton, MA, where the company already had a 50,000-sq.-ft. production plant.
Seven Massachusetts stores were closed, but all 350 local jobs were saved, including 200 in Brockton; 17 stores and 30 delivery routes in Massachusetts and Rhode Island were retained.
Zoots was started in 1998 by two former Staples Inc. executives and backed by Staples founder Tom Stemberg. At its peak there were more than 50 retail outlets on the East Coast and more than 800 employees.
After a planned recapitalization fell through and no buyer for the company could be found, the company began selling its assets piecemeal.
Todd Krasnow, founder of Zoots, told the Boston Business Journal that the sell-off was “disappointing personally.”
He said in the early days the company grew too quickly, but in recent years it had offset that early growth with a slower pace of expansion.
The company only recently became cash-flow positive, he said, and in a better financial environment probably would have been able to attract new funding.
"It's a lousy time to be out in the market looking for any kind of money," Krasnow told the Journal.
The sell-off covered some of the company’s debt, but Zoots still owes around $8 million to lenders, according to an attorney who was involved in the sales.
Former owners of four companies in Virginia and Pennsylvania that were acquired by Zoots before the sell-off have taken Zoots to court, saying the company failed to make $2.5 million in payments related to the acquisitions.

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