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Stantec CEO Bob Gomes at Stantec in Edmonton. (Jason Franson for The Globe and Mail/Jason Franson for The Globe and Mail)
Stantec CEO Bob Gomes at Stantec in Edmonton. (Jason Franson for The Globe and Mail/Jason Franson for The Globe and Mail)

Strategy

Steering a new phase of the Stantec growth story Add to ...

Bob Gomes was on the leadership track at Stantec Inc. when he heard a rousing speech by his boss, the CEO who built the engineering and design firm into an acquisition juggernaut.

It was a classic Tony Franceschini speech – passionate, engaged, and followed by a standing ovation – and it left the low-key Mr. Gomes with mixed feelings.

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He leaned over to his wife and whispered, “Who the heck would be stupid enough to follow him as CEO?”

Mr. Gomes, apparently. Two years after Mr. Franceschini’s retirement, he is, in his measured way, putting his stamp on Edmonton-based Stantec.

The company is still an acquisition machine – last year it acquired 10 firms and is at any time involved in a few dozen takeover discussions, particularly in the United States, where it hunts vigorously for opportunities.

But Mr. Gomes expects to relax the M&A focus that, in the decade under his predecessor, made Stantec the go-to buyer of small to medium-sized design firms across North America. Now, it will wield its scale, client base and expertise to land larger contracts from larger customers, Mr. Gomes says.

At 56, he believes he is the consensus-style leader who can pull together Stantec’s scattered strands. “We needed Tony’s vision, that charismatic leader, to get us in this position,” he says. “But now that vision is there, and it’s just a matter of executing it.”

In the next decade he expects an evolution from takeover-fuelled growth to internally generated expansion. Recent acquisitions now account for two-thirds of revenue gains; in 10 years, the pendulum should swing to organic growth.

It would mean a new phase in a strong growth story. Founded by Edmonton environmental engineer Don Stanley in 1954, Stantec is Canada’s largest architecture firm, a leader in health-care infrastructure, as well as a major player in engineering-design markets from environment to water.

Last year, revenue exceeded $1.5-billion and Stantec was profitable for its 57th straight year. Mr. Gomes talks of growing revenue to $3-billion in 10 years.

Amid a tumultuous economy, Stantec has coped well, benefiting from the splurge of infrastructure investment. But some investors believe spending will dry up as governments cut back on stimulus. That belief contributes to Stantec’s current status as a frequent short-selling target.

The attitude may also reflect the company’s growing presence in the U.S., where state and regional governments now face tough financial outlooks, says Pierre Lacroix, who covers the company for Desjardins Securities. But Mr. Lacroix likes Stantec because it is highly diversified in its breadth of contracts and geography. It also operates in spheres such as water, environmental and regulatory work that have growth potential as economic conditions turn around.

Analysts who follow the company point out that Stantec has been successful in winning contracts as part of public-private partnerships in Canada, and should benefit as the concept gains traction in the cash-strapped United States.

Mr. Gomes says by e-mail that, while he keeps aware of the short-selling, “we continue to provide solid operating results in the top tier of our industry, and a strong balance sheet.”

Mr. Gomes says the soft economy south of the border offers a good window to pick up firms and professional employees. More importantly, U.S. growth is critical for a company that has acquired about as much as it can in Canada.

The arithmetic is simple, Mr. Gomes says. Stantec has 6,500 people in Canada, and only 4,500 in the U.S., where the market is 10 times the size.

One of its big regional targets is the U.S. West, where Stantec does about 20 per cent of its business. Particularly enticing is California as it climbs out of its economic funk to invest in much-needed water and transportation projects.

“You might think of California as a bankrupt state, but they’ve got every water problem you can think of,” Mr. Gomes says. “They’ve got drought, they’ve got floods, they’ve got everything. They just don’t have any money.”

But in the long term, California will have the money, he says, and Stantec wants to be in position to capitalize.

Canada is a more mature market, but the company is always ready to fill in gaps in geography or expertise. Mr. Gomes visited St. John’s a year ago, and was struck by the buoyant resources economy in Newfoundland and Labrador.

The result was a toehold on the Rock, with the pending purchase of a 50-employee mechanical and electrical engineering firm called QuadraTec Inc.

But there are clearly companies Mr. Gomes would not buy. Stantec would, for example, shun a firm that didn’t want to be part of a big integrated organization – that just wanted to send a cheque to Edmonton and be left alone.

“We’re not doing this just to get bigger,” he says. “We’re doing it so that we can work together and go after larger projects, larger clients, larger portfolios.”

Also, the target company should be centred on design, and not involved in other activities such as construction or technology investment.

Mr. Gomes says this tight focus is one reason Stantec enjoys an almost 50-per-cent success rate in winning public-private partnership contracts. Because it focuses on design, it doesn’t play in the space of potential partners, such as major construction companies.

A couple of recent transactions take Stantec into a wider arena. It recently bought Burt Hill, a large architecture firm in western Pennsylvania that has branch offices of 150 people in Dubai and 70 in India. Another U.S. acquisition, health care architects Anshen + Allen, provides a London office.

These acquisitions provide back-door entry to offshore markets, where Stantec can look and learn for another two to three years before seeking international acquisitions, he says.

It means a lot of travel for Mr. Gomes, but increasingly, he leaves spade work to the acquired firms’ local managers – a mark of his leadership style. “We really have to expand beyond just having one person out there looking,” he says, and seven of the 10 members of the executive leadership team come from acquired firms.

Mr. Gomes may not be known for his barn-burner speeches, but he knows Stantec intimately, having worked there 23 years. He started his career with a smaller Edmonton engineering firm, but left for Stantec after a few years.

And, of course, Stantec proceeded to buy it, too.





 
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