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LAS VEGAS—Based in the gambling capital of the U.S., American Optical Services (AOS) lost its bet on consolidation . . . and brought a number of successful optical businesses down with it. Judging from the many successes private equity firms have experienced in the sector, this failure was not due to the market itself, which remains robust, but resulted from poor planning, mismanagement and other factors, according to many of the investors and retailers spoken to by VM.

Formed in 2009 with a buying team and a group of seven regional managers reporting to COO Erica Perreira, AOS began acquiring and overseeing the operations of practices across the country with Pierre Keyser as president and CEO. Some were retail-oriented eyewear businesses, while others were ophthalmology or optometric medical model practices.

Why did AOS fail? According to a statement released by the parent company when it filed for bankruptcy in 2014, “The liquidity crisis that precipitated the filing was the culmination of various factors including a non-strategic acquisition strategy, unsustainable costs of practice integration, electronic medical records implementation and general mismanagement.” In addition, “upon the discovery of significant accounting irregularities, the board of managers launched an investigation, which led to the termination” of the company’s former CEO, Pierre Keyser, and former COO, Erica Perreira.

Unlike other successful investments in the sector in which synergies were exploited or optical chains were rolled up based on their geographic proximity, AOS was all over the map, acquiring locations haphazardly with no thought toward how the whole could equal more than the sum of its parts.

“Significant accounting irregularities” proved too much for the company. AOS went bust and filed for bankruptcy protection on Friday, June 20, 2014.

Those that had been paid up front already had the money they were due for the businesses that they had sold to AOS, but others who had accepted payment plans from AOS were stuck and had to wait until the company proceeded through bankruptcy protection to find out what they would receive, as VM reported.

Turnaround executive Thomas J. Allison was named CEO, and he began a process of restructuring that involved categorizing the operation’s practices into three silos—those that needed to be closed due to their profitability levels, those that would be sold at auction and those that were placed into “keepwell” operation to remain open, offering their previous owners the opportunity to buy their practices back from AOS within 60 days.

Currently, private equity investors and retailers VM spoke to point to the failure of AOS as a lesson to eyecare professionals, reinforcing the advice financial consultants have for those seeking an exit strategy by selling out to private equity and other investors making acquisitions—be sure to vet the buyer and any transaction before agreeing to anything, especially a deal that involves payment plans versus money up front. There are plenty of successful deals happening in the optical sector, as evidenced by the chart here, and there are surely to be many more.

jsailer@jobson.com