LaFrance Buy of Super D Drug A 'Perfect Marriage'

After 10 months of negotiations, Stephen LaFrance Pharmacy Inc. found a perfect fit last week for its combination of 15 drug stores and a distribution network for prescription drugs and health and beauty aids.

The Pine Bluff firm acquired Memphis-based Super D Drugs Inc., a chain of 87 drug stores in Arkansas, Tennessee, Mississippi, Missouri, Oklahoma, Texas and Wisconsin.

"They had something that I didn't have," says Steve LaFrance, who started his USA Drug and Beauty Market chain in 1968. "They had a number of stores. I've got a vertically integrated system that's underutilized. They had what I lacked, and I had what they lacked.

"It's just a perfect marriage. They had no vertical integration whatsoever. They had no warehouse, no private label, no direct access to merchandise and no generic pharmaceuticals in their warehouse. I have all of those in place working like an oiled clock. I needed more stores and they needed me."

The transaction was also a perfect fit for Jerry Treece, president of Super D Drugs.

The bank and investors who owned Super D Drugs wanted to sell out, Treece says. They bought Super D Drugs as a leverage buyout from Fleming Cos. in 1988. The owners prepared a book on Super D Drugs that was sent to almost all the major drugstore chains in the country.

"We really wanted someone like Steve to buy it," Treece says. "If a major chain had bought it, all the people around here would have been gone. Steve needs our employees. Anybody [with Super D] who wanted a job got a job."

LaFrance's acquisition of Super D Drugs makes Stephen LaFrance Pharmacy the 10th-largest private company in Arkansas. Neither firm discloses financial information, but Super D Drugs' 1996 revenue is estimated at $185 million. Arkansas Business estimates Stephen LaFrance Pharmacy did about $180 million in sales, making it the 24th-largest private company last year. The total of $365 million revenue would place LaFrance behind Simmons Foods Inc., which did $380 million last year.

Almost $100 Million Deal

Neither LaFrance nor Treece would disclose the terms of the deal. But Ray Sheeler, a principal with Business Valuation Services Inc. of Dallas, and Lisa Burke, an analyst with BVS, estimate the acquisition price of Super D Drugs between $90 million-$100 million.

Sheeler and Burke based their calculations on the revenue estimates for Super D Drugs and similar valuations of recent transactions for public drugstore chains such as J.C. Penney Co.'s $3.3 billion purchase of Eckerd Drugs in February. Taking into account that Super D is much smaller than Eckerd, BVS valued the deal at 50-55 percent of Super D's $180 million in sales.

LaFrance acquired Super D Drugs' operating assets, but not the corporation. "Reading between the lines," Sheeler says, that fact indicates the transaction probably was a cash arrangement, so Super D could pay off its debt and its stockholders.

The purchase allows more efficient use of LaFrance's distribution system to 1,100 stores in the South and his 200,000-SF warehouse in Pine Bluff, driving down overall costs. That allows the firm to compete better in the market, LaFrance says.

"We already compete very, very well with our USA Drug stores," LaFrance says. "What I want to do is to continue to serve our customers. I want the stores to be clean and neat and have the right merchandise and the right prices that our customers want. That's sincerely from my heart what I want."

LaFrance plans to spend about a year to rework the Super D Drug stores. Specifically, LaFrance says, that includes putting in a point-of-sale computer system, a new computer system for the pharmacy department, remerchandising, remodeling and expanding Super D's depth of merchandise. After that, LaFrance plans to grow in each of Super D's markets, especially the Little Rock; Memphis, Jackson, Miss., and Springfield, Mo., areas.

He says he is looking for more locations for the Little Rock area.

Treece says LaFrance "definitely has some opportunities to grow this chain."

"I know he's got the money to [expand] and that's his plan," Treece says. "I'm going to help him every way I can."

He says possibly two or three stores will close because of poor performance and maybe 8-12 new stores will be added in the next couple of years "to fill in the markets where we are." He is uncertain right now however, how many stores he wants to have overall in the next several years.

LaFrance says he is unsure whether he will change the names of the Super D Drugs stores. He says he also has thought about the possibility of changing the USA Drug name to Super D Drugs.

LaFrance says Super D Drugs approached him about the acquisition. Treece says LaFrance was one of many smaller drugstore chains offered an opportunity to buy the Memphis firm.

Treece will continue to work for LaFrance for two months, and the two are working on a consulting arrangement for Treece after that.

With the addition of Super D Drugs' 1,400 employees, LaFrance's company now has about 2,100 workers. LaFrance says 15-20 families who work with Super D Drugs' corporate headquarters will move to Pine Bluff soon.

In Arkansas, USA Drug has three stores in Pine Bluff and one each in Little Rock, North Little Rock, Camden, Malvern, Newport, Paragould, Russellville, Searcy, Springfield and Warren. In Louisiana, USA Drug has stores in Shreveport and Bossier City.

Super D Drugs has 33 stores in Tennessee, including 17 in Memphis; 28 stores in Arkansas, including five in Little Rock and two each in Hot Springs, Fayetteville and Jonesboro; 13 in Mississippi, including six in Jackson; seven in Missouri, including four in Springfield; two in Texarkana, Texas; two in Muskogee, Okla.; and two in Wisconsin.

It also has 23 franchised stores in Tennessee, Missouri, Mississippi and Hot Springs. n