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Vision Service Plan (VSP) took over ownership of Marchon last Friday, after acquiring the eyewear manufacturer/distributor the day before for $735 million, funded by a combination of cash and debt. The acquisition puts VSP’s Altair Eyewear operation under the umbrella of Marchon, now a wholly owned subsidiary of VSP; and melds VSP’s Eyefinity Internet portal with Marchon’s OfficeMate Software Solutions practice-management operation into a new “eyecare business solutions organization.” As part of the transaction, VSP will also acquire Marchon’s 50-percent ownership of Eye Designs, which designs custom interiors and merchandising systems for the optical industry.
Said Lynch, “Everything we do is in support of our doctor network, to ensure that they have high quality choices. We want to put together a platform that gives them best-in-class products, best-in-class business practices and the underlying architecture to run their business on a solid basis. But we’re also focused on ensuring that there’s a vibrant market out there, so doctors can have a range of sources of materials, to transact using other partners for their business, if they choose.
"We think this is a tremendous combination which creates the potential for an integrated platform for eyecare delivery. It’s going to preserve choice for our doctors and give them a vehicle, if they want to take advantage of it, to be more competitive. At same time, each of our businesses will function independently."
He continued, “VSP has for a long time been in the materials business and the lab business; and certainly prior to Eyefinity was in the practice solutions business from the claims processing area. We needed to get larger in some of those businesses, so our doctors continue to have high-quality choice. We started to look around the industry; I was relatively new to the business, but one of the first names I heard was Al Berg’s. We first met about a year ago and found we had a good personal rapport, but also came to see that, culturally, we were very similar companies. Marchon has been in business for over 25 years, us for 53 years--both focus on providing operational excellence in our business lines, both organizations take pride in the fact that they are recognized as best-in-class from a service standpoint. We both have a number of long-term service executives who are high performers and feel passionately about the businesses they support. And, Marchon had made an investment to build out its business globally and we’ve made the decision to do the same.”
Stated Berg, “We had been looking at a variety of long term options; we’re an excellent company, with great people, very successful, but we’ve seen the changing marketplace and the changing position of our competitors. We ourselves had done a list of companies we’d consider working with, and VSP was on the short list. We’d known them from the outside, they had an excellent reputation, and VSP was changing as Rob came into the picture. We spent a lot of time learning about each other’s organizations and as we talked, it became clear that if the two of us decided this was the right answer, it would be a great combination.”
Said Lynch, “In terms of the managed vision business, one of the things Marchon can do is help us take our business globally. As its own business line, we feel strongly that our network supports the broader health care continuum, provides access to health care and focuses on wellness; by contracting with us, employers can see a reduction in their health care costs.”
“Our mission,” added Berg, “continues to be how to strengthen the retailers that support Marchon. We learned we have a tremendous overlap in the U.S. with the independent optometrist. In looking at ways to make every customer a better businessman including the independent OD, we saw we could do a tremendous job in terms of the efficiencies of his or her operations. We need a very strong customer base that can compete with the largest group in the U.S.”
Berg estimates that 75 to 80 percent of Marchon’s business is with the three O’s, roughly 20 to 25 percent with chains.
When asked if, like some other managed vision care organizations that own retail chains, VSP would consider such a move, Lynch said, “We don’t think it’s necessary that we add a chain. Our base network today has 25,000 private practice doctors; we’ve been growing by about 1,000 doctors a year, and expect that to continue. When we take a look at where VSP patients go to access care, our out-of-network is less than 2 percent. When we look at different geographics around the world, where care is distributed differently than in the U.S., we would look to work with private practices and examine those systems.”
Internationally, Lynch noted, Marchon has an “incredible” network set up outside the U.S. Each of VSP’s businesses has a game plan, he said, to pursue global expansion, and Marchon will help VSP with that research. “Managed care, per se, doesn’t really exist outside the U.S.,” Lynch noted, “but insurance or some form of benefits to practices” is an opportunity.
Organizationally, VSP Vision Care will have four operating units: its VSP insurance business, which will be headed by president Gary Brooks; its ophthalmic services or laboratory unit, consisting of VSP’s approximately 300 contract labs and its own and partner labs, headed by Don Oakley; the eyewear division, which will be Marchon Eyewear and Altair, with Marchon headed by Berg and Altair continuing under the direction of Steve Wright, reporting to Berg; and the new “business solutions” business, headed by Jim McGrann, president, and consisting of Eyefinity and OfficeMate.
The business locations will stay the same, with McGrann eventually relocating to VSP’s Rancho Cordova office. “VSP has always been domiciled in Sacramento, and now we’ll have two executive offices, one there and another in Melville, N.Y.,” said Lynch.
The practice business solutions business of Eyefinity and OfficeMate will continue to expand. Said Lynch, “We have partner relations with almost every participant in the industry and we hope none of these partnerships will change, we hope they’ll all continue.” Added Berg, “For the future, the processing of businesses b-to-b is going to be critical to business success.”
OfficeMate, among all of its users, is a supplier of practice management software, electronic medical records programs and other services, to approximately 10,000 U.S. accounts. According to VSP, Eyefinity has 18,000 total licensed locations (among 25,000 doctors) and processes more than one million online transactions a month, including claims, lab orders and e-commerce (purchasing of frames and contact lenses).
Marchon remains a partner in Vision Web, the other industry portal. “I’m personally a big supporter of VisionWeb, I’m proud of what we’ve done to support them, and we’re optimistic that both portals are of benefit to the industry,” said Berg.
Lynch added, “It would be great if we could somehow get Eyefinity and VisionWeb to work together. Any portal that allows for the ease of transacting is a benefit to doctors.”
Altair, which brings its own brands as well as the licensed brands of Tommy Bahama, Joseph Abboud, Sigrid Olsen and Revlon to the deal, has grown in 15 years to a $40 million business, Lynch noted. Said Berg, “They have an interesting business model, a large part of which has been a consignment model, which is very successful. Our plan at Marchon is to continue to use our own business model for all of our brands. But we can learn from them and they can learn from us. Altair will be another division of Marchon. We can consider taking some of those brands internationally, and, with our design teams and production sources, there are many ways we can help grow that business.”
Berg stressed that for Marchon’s portfolio of house and licensed brands--ranging from Coach and Michael Kors to Fendi, Pucci and others--“We’ve had discussions with all of our brands about this deal and we don’t envision any changes at all. [Our licensors] realize that they want strong partners; they are all supportive of this arrangement.”
Starting Sept 1, through February 2009, Marchon and Altair will participate in VSP’s Partnership Plus program, offering $5 for each Altair or Marchon frame dispensed by a VSP doctor to a VSP “This applies to all frames in the Marchon portfolio,” Berg said, adding, “It is a reimbursement from the insurance side,” with Lynch noting that the program is similar to ones that VSP has done in the past with other suppliers.
Regarding the laboratories, Lynch emphasized, “We are absolutely committed to the contract lab system but have been looking to have a broader presence with partnerships or owning our own labs. This is separate from the Marchon acquisition, but we’d be interested in having a geographic lab presence in the Northeast.”
Asked about eyewear’s presence within the labs or the possibilities of a future presence, Lynch noted that Altair does have a program in place with its Charity Care plans through which some Altair intentory is kept in VSP’s Columbus lab to fill those orders.” Added Berg, “It’s a benefit for Marchon that VSP owns some labs. Not because we’ll be running a lab business extensively, but for Marchon to ultimately to do the best job for its customers, we need to learn more about the labs--how we transmit information, create efficiencies for customers. This deal gives us the opportunity to better study that situation and possibly better improve service levels in the industry as a result.”
Berg noted, “This is a great industry, and with this announcement, the industry has gotten a whole lot healthier. The [acquisition] will strengthen Marchon by giving us resources we didn’t have, expand our offerings and frankly, better defend our business. We’re a successful privately held company. This is a new chapter. For all of our employees and sales people, not one person is negatively affected by this change. We will make sure that the customers of Marchon and VSP’s providers will have every opportunity to be successful in this business.”
Said Lynch, “It’s an important point that we are a private organization and we do look at the redistribution of any surplus, including that of Marchon, back into our system to make it helpful to all participants.”
The complete video of VMail’s extensive interview with Lynch and Berg provides additional information on other topics related to the deal and some of VSP’s future plans. Watch for its posting via Vision Monday’s Web TV on www.visionmonday.com.
