SURVIVAL STORY

SURVIVAL STORY

By David Wexler

Associate Editor

Companies handling a variety of management tasks for other businesses, known as professional employer organizations, were facing a crisis in 2002: Insurance underwriters providing workers compensation to these companies began pulling out of Florida.

Chicago based CNA, which was one of the dominant players nationwide, kicked off the crisis by getting out of the market. It left these companies, PEOs, scrambling to find coverage, which was required by law. Some PEOs in Florida shut down, while others merged with companies that had workers' compensation policies.

Despite the uncertain times, Bradenton-based Progressive Employer Services not only survived, but thrived. Today, it remains one of the fastest-growing PEOs in the state of Florida. Steve Herrig, CEO and founder of Progressive, bought out his partners to stay in the game, putting up millions of his own money.

"I believed in the PEO model and stayed the course through some very difficult periods and put a lot of my time and a lot of my money at risk," Herrig says. "It's paid off."

Progressive topped $200 million in revenue in 2004, up from $188.6 million in 2002 and $84 million in 2001.

Last month, the company acquired Tampa-based Sunwest PEO of Florida, giving Progressive 525 more worksite employees, a 78% increase over its current client base of 675. With the acquisition, Progressive now has more than 1,200 clients that have more than 15,000 employees. It now ranks among the top 20 nationally among PEOs, according to Herrig.

"Progressive's own growth, coupled with the acquisition of Sunwest, hopefully will bring us in the mid $400 million range by year's end," Herrig says.

Herrig says he is always looking at opportunities in the PEO market and expects to make more acquisitions within the next few years, possibly doubling or tripling in size.

The beginning

In 1993, Herrig graduated from the University of Dubuque, in Iowa. He packed up his bags and headed west to California to begin work in the insurance business. His father had spent more than 30 years in the business.

However, when he arrived in California, Herrig had second thoughts.

"The people weren't as genuine and the water was cold and dirty," he says. "I was there for two weeks, turned the car around and drove to Sarasota."

Herrig chose the Gulf Coast because he had two great aunts that lived in the area and he preferred its clean and warm water.

He landed his first job with Purmort & Martin Insurance Agency. He later worked for Connell & Herrig, a Sarasota-based insurance agency that Herrig co-founded. In 1999, he sold the insurance agency and started up Progressive with Dennis Hartig, who also worked at Connell & Herrig.

"I had experience in workers' comp and benefits, which fit two parts of the equation of the PEO model," says Herrig, who used the capital from his sale of the insurance end of his business to fund Progressive.

Privately owned, Progressive provides payroll administration, employee benefits, workers' compensation, risk management, human resources and regulatory compliance services to small-and medium-sized businesses. Among the companies it targets are those in the service and construction industries.

While 99% of Progressive's employees are based in Florida, Herrig says it not one of his requirements when seeking acquisitions.

"If you ask me what our ideal candidate would be, it would be a PEO that's down in the Southeast that has most of its business in the state of Florida," he says. "But we're perfectly willing to go outside of Florida. If we do go out, we'd like to keep it geographically close to Florida as possible, preferably in the Southeast region and grow up the Southeast coast."

'My impact'

According to The National Association of Professional Employer Organizations, there are about 700 PEOs operating nationally, providing human resource services to 3 million U.S. workers.

Florida is considered a hotbed of PEOs because many of the pioneers in the industry started there, Herrig says.

Bradenton businessman Bill Mullis, the CEO of Employee Leasing Solutions, is one of those pioneers. Considered one of the godfathers of the PEO industry, Mullis launched his first PEO, Staff Leasing Inc., in 1983. Many partners from Staff Leasing broke off and started their own PEOs.

"That kind of company breeds other companies," Herrig says. "I can look around at a lot of different PEOs out there and the people that own them were, at one time or another, with Staff Leasing."

While their business models differ, Mullis' Employee Leasing Solutions and Herrig's Progressive have seen significant growth over the past three years. Progressive credits its growth to its focus on the customer.

When walking through Progressive's Bradenton offices, you can expect to see signs hanging over cubicles with slogans such as, "Stop and remember: This is your only client" and "My Impact."

Patrick Del Medico, executive vice president of sales and marketing for Progressive, says Progressive's staff of 75 is constantly reminded to treat each client as if they were their only clients. It's also evident in the arrow in the company's logo, which illustrates that customer care is "wrapped around each of Progressive's four main service offerings."

To ensure the customer is taken care of, the company also has adopted ClientSpace, a Web-based customer-relationship management software developed by NetWise Technology that is specifically configured for PEOs.

"It really keeps every employee in touch with what's going on with a particular client," Herrig says. "Each employee can pull up that particular client on their computer and understand what happened in HR or risk management that might impact different aspects of what we're doing. It's a great asset for us."

Continued growth

In August 2004, Progressive received a $6 million private equity investment from Palm Beach Capital Partners LLC., a move that Herrig says puts Progressive more on par with Employee Leasing Solutions ability to grow and acquire."

Earlier that month, Progressive made an equity investment in Guarantee Insurance Co. of Fort Mill, S.C. As a minority partner in Guarantee, Herrig says the two companies have forged a relationship that has provided Progressive with several benefits.

"I think the real advantage is that if we have a question, or concern or issue, it gets addressed promptly and effectively," Herrig says. "We hadn't had that kind of partnership in the past.

Progressive currently has about 15 sales representatives in offices in Sarasota, Cape Coral, Palm Harbor, Daytona/Port Orange and Tampa. Progressive also has representatives in Orlando, Miami and Jacksonville.

The company plans to do double that number within the next year to 18 months.

"Developing and training our sales force is going to be one of our top priorities," says Del Medico, "and therefore, we will be putting a significant amount of resources toward it."

Progressive acquires Tampa PEO

Progressive Employer Services recently announced it bought the assets of Sunwest PEO of Florida Inc., a Tampa-based professional employer organization founded in 1986.

Progressive and Sunwest did not disclose the financial terms of the deal.

Progressive CEO Steve Herrig said Sunwest was attractive not only because of its client base, but because of its commitment to its customers.

"Sunwest had a reputation for service," he says. "We'd come across them in the field, and their clients were difficult to pry away because they were happy to be with Sunwest."

Progressive has retained Sunwest President Eric Arfons, who will serve as vice president of strategic development. It also offered jobs to all of Sunwest's 50 employees; 45 of them are staying on with Progressive.

Additionally, Progressive has inherited all of Sunwest's offices, with the exception of its Bradenton office.

"They do some things better than we do," Herrig says, "and we do some things better than they do. We believe we're going to create something very special."

The acquisition was funded mostly through a $5 million revolving credit facility it obtained in June, as well as internal funds.

- David Wexler