You’ve probably seen the headlines: "ResCare to acquire"" or "Geary sees more growth." You might have noticed that ResCare ranked second overall in The Lane Report’s 1999 "Blue Chip 50," ahead of many more familiar Kentucky companies.

You may remember that president and CEO Ron Geary was once the Commonwealth’s secretary of state under Governor John Y. Brown Jr. But do you know that ResCare has 25,000 employees nationwide or that it plans to be a $1 billion company within one year?

ResCare, founded 25 years ago and still based in Louisville, is in the human-services business, operating through two distinct divisions.

The Division for Persons with Disabilities helps those with developmental and other disabilities, including mental retardation and acquired brain injuries. It maintains supported living and employment programs, community group homes and some permanent facilities.

The Division for Youth Services offers educational training and treatment programs for at-risk and troubled youth through two judicially-based programs and operating contacts with federal Job Corps Centers. Overall, the company now serves about 26,000 persons in 32 states, plus Canada, the District of Columbia and Puerto Rico.

So why is this relatively unknown company -- perhaps modest or unassuming would be better terms -- succeeding when so many others in similar situations are doing so badly?

First, ResCare is only modest and unassuming in the sense that it eschews flamboyance or hyperbole. It is no secret that ResCare is proud of its accomplishments. It is the number one provider nationwide in its field and it believes it sets the industry standards for excellence and integrity. It provides its services with a remarkably low ration of centralized operating costs. And, it has exceeded analyst earnings predictions for 25 consecutive quarters.

Second, ResCare has achieved this position due to a strong sense of mission and continuity among its directors and employees.

"We really are dedicated to ‘Building Lives and Reaching Potential’ (the new corporate motto)," Nel Taylor, the vice president for communications, told The Lane Report in an interview.

Third, the company’s strategy of growth through acquisition, first enunciated by Geary when he was recruited to become president 10 years ago, has worked because ResCare is in a rapidly expanding but highly fractioned market. With its acquisition in June of PeopleServe, its largest competitor, ResCare still only commands about four percent of the market for contractor-provided human services.

Lastly, ResCare receives payment for its services through the Department of Labor for its Job Corps contacts and through the states via Medicaid for its human services. Consequently, it has avoided the financial distresses that have affected so many other apparently similar companies dependent on Medicare reimbursements.

"I know people will think we’re all the same," Taylor explained. "But we are funded primarily by Medicaid and we are in a very, very different business" from, for example, Vencor or Humana.

The company, founded by James R. Fournear and Dr. Spiros B. Mitsos, was based upon the principle of "Respect and Care". It still is, according to Taylor, perhaps because both founders are still actively involved with the board. (Another long-time board member, Bruce Lunsford, co-founder of Vencor and still chairman of Ventas, was associated with Geary in Governor Brown’s cabinet.)

"Our goal is to be the industry standard of care, to be the best while exceeding all requirements," Taylor said. "We want to help all our clients reach their highest potential in the least restrictive environment possible."

One means is through economies of scale. As the largest provider, ResCare can afford to devote resources to quality assurance and training that smaller providers cannot afford. For example, three different teams analyze potential acquisitions, not only for financial gain but also for areas of quality improvement. The company reinvests 86 percent of its earnings in itself and its employees. And, as Taylor pointed out proudly, it operates its headquarters and centralized management functions on only four percent of its revenues, "while the goal for good not-for-profits is 25 percent."

Economies of scale are also reflected in its growth-by-acquisition strategy. By merging with PeopleServe, ResCare not only brought its annual revenues up to $800 million but it added more than 4,000 new clients and expanded into 12 states where ResCare originally wasn’t operating or only working through limited facilities.

Furthermore, ResCare has also acquired management as it has acquired other providers. Its philosophy is to leave local managers in place whenever possible and to absorb officers into its structure. The result, according to local financial analysts, is that ResCare has not allowed its growth to overwhelm its capacity to manage growth.

"It is a very non-egotistic strategy," an unaffiliated company spokesperson told The Lane Report on the condition of anonymity, stressing that by absorbing its competition ResCare is also potentially reducing its future acquisitions costs by eliminating other bidders.

Finally, ResCare has set the corporate goal of becoming the "acquirer of choice," meaning that smaller providers seek merger with the acknowledged leader. The company now is evaluating possible mergers with almost 300 providers and should announce several by the end of the year, Taylor said. Although PeopleServe, with $200 million in revenues itself, dwarfs the typical acquisition, Geary told Louisville’s Business First that the process was comfortable.

"We’re going to be able to transition this before the end of the year satisfactorily," Geary said, adding that with ResCare now having more than $800 million in revenues, it won’t "stumble" if it makes a mistake when buying a company with $5 million in revenue.

To finance this activity ResCare relies upon an excellent, consistent cash flow and its earned creditworthiness. The company has a largely unencumbered $200 million line of credit through a 13-bank consortium that will expand to $400 million if ResCare can convert $109 million in outstanding convertible notes into stock. That move, from debt to equity, is in progress and should be completed by the target date of November 2000, Taylor confirmed, about the time when ResCare expects to announce it has achieved $1 billion in revenues.

If ResCare is doing so much right, what is the company doing wrong?

Taylor candidly pointed to one contributing concern -- personnel turnover. Although it maintains a remarkable ratio of nearly one employee for every client, ResCare faces the issue of "compassion fatigue" that affects the human services industry, where turnover often exceeds 75 percent among caregivers.

"We do somewhat better," she said, because "we try to present a realistic portrayal of what each job requires."

Still, an internal task force on job stabilization is working to address the issue.

"If we can retain (our caregivers) for three months, we can retain them for two years or longer," far exceeding again the industry standards.

Finally, like all public companies, ResCare itself is vulnerable to a takeover. Takeovers, or attempts to prevent them, caused real grief for Columbia/HCA, Humana and Vencor, among others. What can ResCare do to protect itself and its culture?

Taylor stressed that ResCare’s business system of relatively low margins and few assets discourages most acquirers -- that and the fact that 72 percent of the stock is held by institutions. But more than anything, Taylor said ResCare’s board is confident that the company will continue to prosper and grow because "we provide excellent value to our shareholders, our clients and our employees."

"This company has a sense of history and commitment," Taylor explained. "We want our corporate performance to validate the needs of our clients and our staff. We want to create a secure and confident environment for both. We really are do-gooders."

Robert Carter is associate editor of The Lane Report.