Youth Services hailed for move to new CEO Cole impresses analysts as top-notch successor to Hindman

Juvenile delinquency

July 13, 1996|By Jay Hancock | Jay Hancock,SUN STAFF

Three Wall Street analysts lavishly praised Youth Services International Inc.'s new chief executive yesterday as a tempered pro who can make the company much larger while avoiding the previous business mistakes of its founder and chairman, W. James Hindman.

The hiring of Timothy P. Cole "is a great move" for the juvenile-delinquent-treatment company, said Brian W. Ruttenbur, vice president with Equitable Securities, a Nashville, Tenn., investment firm.

"I was very surprised to hear it," Ruttenbur said. "I didn't think that Youth Services would be able to attract somebody like him."

Cole, 52, is chairman of Wackenhut Corrections Corp., a Palm Beach Gardens, Fla.-based manager and developer of private prisons and jails. His Aug. 5 replacement of Hindman as Youth Services' CEO was announced Thursday.

In hiring Cole, Hindman "has done something that a lot of entrepreneurs have a hard time doing. He's turned over his baby to professional management," said William Bavin, an analyst with Ferris, Baker Watts in Baltimore who follows Youth Services. "I've talked to a number of people out there, both competitors and industry observers, and without exception everyone has said it's a tremendous move."

In interviews, Hindman, 60, and Cole denied that the switch had anything to do with recent gyrations in Youth Services' stock price or with an aborted deal to acquire Alabama-based Three Springs Inc. Youth Services is based in Owings Mills.

Rather, said Hindman, Youth Services has reached the point where it needs new talent for continued growth.

"I started the company with the original idea that my contribution, if it was going to work, should be accomplished within a five-year period," he said. Youth Services has "developed the need for management systems and the type of leadership style that comes from running a big company, which I have no experience with."

Hindman will stay as Youth Services' chairman and will chair the board's executive committee.

"I certainly don't expect to be involved in the day-to-day activities and in the mergers and acquisitions, which I expect Tim to continue," Hindman said. However, he added that he expects to be "almost a full-time chairman" and will spend much of his effort writing and speaking about corrections policy and how the country must work harder to keep troubled youths from becoming lifetime criminals.

Independent analysts confirmed Hindman's version of the command change.

"Jim Hindman has always said that when this company approached $100 million in revenue that he was going to turn it over to professional managers and get the heck out of the way," Bavin said. "And he's kept his word."

Hindman had made a previous fortune by founding and building Jiffy Lube, the quick-oil-change retail chain. But the company loaded up on debt, foundered and eventually was sold.

Youth Services, which runs government-sponsored rehab camps for delinquent young people, has had little difficulty attracting capital. It went public in 1994, and since then its stock has risen from less than $4 per share to its close yesterday of $17.50. But as recently as May it was worth $31.25.

The stock's descent was sparked partly by a recent general fall in small-company stock prices and partly by the demise of the deal to buy Three Springs, a competing youth-treatment company, analysts said.

The hailed Three Springs deal would have quickly boosted Youth Services' sales and was expected to help profits, too.

Youth Services nixed the merger after it looked at Three Springs' books and decided the companies weren't so hand-in-glove after all.

But Youth Services' stock hasn't been helped either by worry about Hindman's ability to run a larger company. Cole's arrival, Bavin said, should remove those doubts.

"Tim Cole is precisely what they need in this phase of their company development," said Emil Henry, managing director with Gleacher NatWest in New York. "He has real credibility with the payors of corrections programs," who are mainly state governments.

Bavin has upgraded his recommendation on Youth Services to "buy." Ruttenbur said he has had a "strong buy" on the stock for a year.

One reason analysts like Cole is his experience with exponential sales growth as well as with the corrections business. Bankruptcy courts are packed with the files of promising small companies that lost control of cash flows, hiring, expenses or other areas after their businesses outgrew their handmade accounting and management systems.

At Wackenhut, Cole and CEO George Zoley "grew the company from 300 beds in 1988 to 22,000 today," Ruttenbur said. "That's impressive. He has the background to enable Youth Services to take the next step and to rapidly grow."

Youth Services should report revenue of $85 million or so for the fiscal year that ended last month, Bavin said.

He expects sales of about $108 million in the current year, "and I already see the programs in place to get to that number."

In an interview, Cole said he plans no radical changes except to "consolidate" Youth Services with management and financial systems "that will allow this company to become a $500 million-a-year company."

Coming to Youth Services "was a chance to do something other than treat the symptoms" of crime, he said.

"If you're going to solve this problem, we have got to start investing money 10 or 15 years back down the time line, if we are going to change the behavior of these youth."

Pub Date: 7/13/96

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