A series looking at the unique challenges facing Canada's midmarket companies and how they innovate, stay competitive and grow. In this piece: Alberta-based NCSG Crane & Heavy Haul Corp. is building its business through acquisitions.
When Ted Redmond became president and CEO of Edmonton-based NCSG Crane & Heavy Haul Corp. in August of 2010, the crane business was scraping the bottom of the Great Recession. On the eve of the economic collapse, the business had been growing, having acquired four other companies in 2008 and early 2009. But when project work dried up, the company was forced to hunker down, making do with maintenance contracts of its customers, many in the oil patch, that were also scaling back operations.
"And then when things recovered, we started executing our growth strategy, trying to get into new markets but also get the new project work as construction work came back and the project work came back," Mr. Redmond said.
As that work picked up, and the company paid down its debt, it started buying up companies again – five more since 2012, including Tucker Oilfield Hauling Ltd. this past September.
Established in 1986 by Gordon Gill as Northern Crane Services with two cranes and two employees, NCSG has experienced a growth in sales in the past eight years from $36.3-million in 2006 to $271.4-million in 2014. The group now has branches in the three westernmost provinces, as well as in Idaho, Montana, North Dakota and Texas. It has 720 employees and a fleet that includes 285 cranes ranging from six to 1,350 tonnes capacity, 78 tractors, and 300 conventional and heavy haul trailers.
Now one of the largest crane companies in North America, NCSG competes with such firms as Netherlands-based multinational Mammoet and with Sterling Crane, a subsidiary of a subsidiary of Berkshire Hathaway.
It's a niche sector dominated by family owned or privately owned firms, said Maxim Sytchev, managing director and head of research with Dundee Capital Markets Inc. in Toronto.
"And as you can imagine, people are not particularly forthcoming in terms of information," Mr. Sytchev said.
Mr. Redmond, though, was more than willing to share details of his company's finances with his competitors during a presentation at the Crane Rental Association of Canada's annual convention this year in Whistler, B.C. He even revealed the top 10 lessons the company had learned during its growth, and offered advice about how to grow a company or how to sell it as an exit strategy.
"Many private equity companies, in fact almost all of them, before they buy a business they start planning the exit," Mr. Redmond said at the conference.
A few days later, NCSG announced that it had signed an agreement for its majority ownership to be transferred to two private equity concerns – Calgary-based TriWest Capital Partners and the $10-billion Alberta Teachers' Retirement Fund. Under the deal, which is expected to close by the end of 2014, the current majority owner, Seattle-based Northwest Capital Appreciation, will remain a significant investor.
"With well-capitalized partners like TriWest and Alberta Teachers, if we've got good acquisitions we've got capital available to do larger types of acquisitions," Mr. Redmond said in the interview.
As for NCSG's current exit strategy, Mr. Redmond said, the next logical step is to take the company public.
"Until you actually get to that point in time, you don't know for sure," he said. "But we're large enough now we could go public on a significant scale and get good coverage and good institutional investment and go public for a good multiple."
One competitor that is already publicly traded is Spruce Grove, Alta.-headquartered Entrec Corp., which Mr. Sytchev covers in his research and which has also been on an acquisition spree in recent years. Among Entrec's notable acquisitions was the $57.8-million purchase in 2012 of Alberta-based Mains Group. Entrec (TSX-ENT) graduated this past June to the Toronto Stock Exchange.
"One of the interesting characteristics about the entire space is the free cash flow profile of these companies," Mr. Sytchev said.
Cranes themselves are highly durable and valuable assets that can last 30 to 40 years, he noted. Operating them also requires highly specialized skills, helping to make the business "very attractive from a return perspective," he said.
In Entrec's case, more than half its revenue is linked to oil and gas, Mr. Sytchev said. NCSG's business encompasses the wider energy and heavy industrial sectors, including mining and power generation, Mr. Redmond said. That business can range from upstream oil and gas projects, such as disassembling rigs and assisting with oil well construction, but also midstream applications, such as building pipelines, gas plants, oil storage facilities, and refineries.
The company also performs a lot of maintenance of those facilities, such as during shutdowns and turnarounds, said Mr. Redmond, who before joining NCSG was an executive vice-president with McCoy Corp., the energy services division of McCoy Global Inc. His résumé also includes almost eight years in the 1990s as a senior manager with Boston Consulting Group.
Mr. Sytchev noted that NCSG "very early on and very intelligently" accessed that maintenance market, something Entrec has also tried to do.
One growth strategy of NCSG has been to purchase existing companies rather than opening greenfield operations from scratch. One such deal was the 2006 acquisition of Calgary-based Mullen Rigging and Industrial Services Inc., which had already expanded into the United States.
Similarly, when NCSG was looking to enter the market in the Tumbler Ridge area of British Columbia in early 2013, it bought the smaller of two existing competitors, Grizzly Crane Ltd.
To help finance those purchases, rather than rely on covenant-heavy bank debt that could restrict cash flow, NCSG has used asset-backed loans in which the cranes and other equipment are the security. Initially, NCSG arranged those facilities with the Union Bank of Switzerland and Wells Fargo because Canadian banks have been reluctant to offer those types of loans. "A lot of them will do it against your accounts receivable but nobody would really do it against equipment," Mr. Redmond said.
That's beginning to change. NCSG and TriWest recently worked out a deal with Royal Bank of Canada that Mr. Redmond called "one of the very first equipment-led asset-backed loan facilities led by a Canadian bank."
He expects those facilities to become more common in this country as a means to assist asset-intensive companies with their financing. The NCSG loan also only requires paying the interest without touching the principal.
"It's designed so that you can use your cash flow to grow your business," Mr. Redmond said.