By Cheryl Mahaffy
“This is a pretty bad downturn. I’m so excited, I can hardly contain myself.” That’s Dave Tonken’s contrary perspective as CEO of Scout Capital Corp., self-described “Liquidation World of public company assets.” Tonken and his minuscule crew earned spot #6 in Alberta Venture’s list of the province’s 30 Fastest Growing Companies by revving up a unique enterprise that snags public firms just before they crash, disposes of the innards (need a low-orbiting satellite?) and sells the shells at a profit. In the year ending July 30, 2001, three-year-old Scout Capital grossed $1.6 million in sales, a full 22,256% above the year before.
“It’s raining shells. I’m running around trying to catch them in my bucket,” Tonken enthuses; what’s more, he adds, some has-been stars are admitting defeat even before burning through their cash. “I didn’t anticipate the market doing me a favour by providing acquisition targets with millions in the bank.” Besides being plowed back into new shells, such unexpected windfalls help to ensure that shareholders of failed firms receive something — rather than the usual nothing — as the ashes cool. Beyond shareholders, Tonken says he serves the business community by offering unlucky entrepreneurs an honourable exit strategy and investors a shell that’s been thoroughly checked for closeted skeletons. “Really, I provide a service driven by customer need,” he asserts. “I provide the vehicle that allows people to raise money. And these are race cars, not VWs. I’ve put together a management team with 150 years of experience — the best in Canada. We look at 30 companies before we buy one. And we guarantee our product. We’re becoming the premier provider of shells.”
Thus the worst of times, with a twist of ingenuity and a hefty shot of customer focus, becomes the best of times — or at least opportunity snatched. And that, in a phrase, describes the attitude keeping many of Alberta’s Fastest Growing Companies above the radar amid post-dot-com, post- 9/11 economics.
Not that all 30 experience those roller-coaster realities as a negative. A minority says the downturn is not hampering growth. Among them is top-ranked BioWare, which joins SMART Technologies (#9) and BW Technologies Ltd. (#17) in an elite trio that has graced this list ever since it began four years ago. “It’s great to see some of these firms continue to make it year after year,” says Brent Driscoll of Grant Thornton LLP, who ranked the applicants based on three consecutive years of data. “That really says they’re not flash in the pan.”
Unlike fellow high techs — indeed, unlike all others in our fastest growing 30 — BioWare is focused on fun. Trading on the cachet of an expanding entertainment industry, it leapfrogged from a negative balance two years ago to significant profitability by feeding youthful appetites for role-playing games.
But like others who feel immune to the downturn, including Matrikon Inc. (#12, 3x — that is, third year on our top 30) and AltaGas Services Inc. (#23, 2x), BioWare is continually on the move, spreading its eggs among new yet interconnected baskets. The Edmonton firm spent a cool $4.4 million last year to create eight new games and capitalize on next-generation hardware such as Sony’s PlayStation 2. Similarly, AltaGas, which tops the fastest growers in gross sales at over $500 million, is building a “risk mitigating structure” by buying up processing plants, pipelines and other midstream natural gas assets to the tune of $100 million-plus a year.
Several fast-growing firms join Scout Capital in finding upsides in the downslide. As floundering high techs bled workers, CSI Wireless Inc. (#13) was among those mopping up “top flight” staff. Others are attracting cost-conscious clients by emphasizing value.
“When we saw this downturn in the economy, we went to our customers and said, ‘What do you need in these tough times to manage your business?’” says Lakshmi Raj, who founded Replicon Inc. (#2, 2x) with husband Raj Narayanaswamy and serves as vice-president of sales and marketing. “People told us they are finding it difficult to get funded; capital has basically dried up. They need to increase revenues or reduce costs to keep the company alive. So we built a product that not only allows them to look at the productivity of each employee and project, but gives executives a dashboard view of the information needed to take action early on.” Replicon hopes to stem a mid-2001 slowdown in sales growth by promoting its software (which has already garnered half a million users in three years) as an affordable upgrade for firms whose major fibre optic systems and global financial networks have been pushed to the back burner.
Similarly, SMART Technologies has honed its pitch to match “some of the negative elements in the environment,” says president and COO Nancy Knowlton. An expanding roster of clients, including U.S. crisis response agencies, are hearing the SMART message that interactive hardware and software can replace the cost and angst of travel with virtual meetings.
Indeed, it’s no accident that time-and cost-saving technologies are well represented on our top 30 this year, as clients search for ways to weather economic and psychological storms. Others cut from that cloth include Zi Corporation (#8, 2x), Glenbriar Technologies Inc. (#10), Mentor Engineering Inc. (#11), Matrikon Inc. (#12, 3x), Redengine Inc. (#14, 2x), BW Technologies Ltd. (#17, 4x) and Shana Corporation (#20, 2x).
Companies closely tied to oil and gas exploration also populate the top 30 list, reflecting that sector’s strong activity earlier in the new millennium. But energy firms are most apt to report significant impacts from the downturn, underlining the importance of Alberta’s drive to diversify.
Quarry Oil & Gas Ltd. (#18) is seeing “a significant effect on gross revenue” from reduced commodity prices, says Trevor Penford, vice-president of finance. Having purchased $6 million in oil and gas properties in 2000, he adds, “The company is monitoring costs more closely and re-looking at operating procedures to maximize production efficiency.”
The downturn has not altered near-term growth plans for Wellco Energy Services Inc. (#5), which happens to be in a holding pattern after two years of dramatic expansion that set the stage for repeated doubling of revenues, to an anticipated $25 million for 2001. Yet market realities affirm Wellco’s decision to expand beyond well site drilling, supervision and accommodation into environmental areas such as water and wastewater purification, says Gregory Longphee, vice-president of corporate development. With numerous non-energy applications, environmental expertise moves Wellco “away from a complete reliance on the vagaries of oil/gas capital budgets.”
Firms such as Cathedral Energy Services Ltd. (#3) and Octane Energy Services Ltd. (#7) are also mitigating those vagaries by expanding their repertoire. Octane is pushing into production-related services while seeking long-term agreements with a core set of senior oil and gas companies; Cathedral recently augmented its directional drilling division by aggressively expanding a division that rents vertical drilling tools.
“Fortunately for us, we’ve opened a few more doors to different customers. So we’re hoping everything remains at worst flat for this year,” says Cathedral CEO Mark Bentsen, who saw a gross sales revenue increase of 229% in 2000 over 1999. But competitors are floundering, their customer base upset by a rash of acquisitions coupled with a 20% decrease in drilling. “It’s one of the most difficult times to forecast anything; everybody is out there standing on their toes, trying to determine what’s ahead,” Bentsen says. “We do have some growth forecast, but we’re being very cautious. Our focus is certainly to put our best foot forward, both in equipment and personnel, to ensure we’ll be called back again.”
That same return to the fundamental of heeding customers surfaces when our top 30 ponder the reasons for their exponential growth. These business leaders know who’s most responsible for keeping them alive. Particularly in this time of vulnerability, they’re keeping a finger on the customer’s pulse.
BW Technologies Ltd. (#17, 4x) attributes its 52% increase in gross sales (and 279% rise in pretax profits) to highly innovative gas detection devices driven by customers’ need for affordability and ease of use. Case in point, says CFO Tom Jones, is BW’s pioneering no-maintenance gas detector. “Before, an oil refinery might have 10 expensive gas detectors a foreman would carry around, whereas now everyone in the refinery can wear a GasAlert clip, because they’re less expensive to buy and you don’t need a squad of maintenance people to look after them.” Similarly, the company’s new GasAlertMax Datalogger borrows digital camera technology to collect air quality data that can be downloaded into Excel spreadsheets, eliminating the need for a separate data collector that was not only bulky, but required specialized software.
BW supports its user-friendly devices with up front pricing (an anomaly in the sector), next-day delivery, liberal warranties and an aggressive, knowledgeable sales force. “We’re taking market share by leaps and bounds, beating the U.S. and western European companies, which historically have dominated,” says Bryan Bates, executive vice-president. “And it really comes down to listening to customers. Everything we do is for Mr. User.”
Mentor Engineering Inc. (#11) also prides itself on providing “a ton of functionality” in one multipurpose, easily customized computer that connects taxis, ambulances, tow trucks and other mobile fleets. Running counter to the short-life-cycle mentality that infects the high-tech arena, Mentor supports older generation hardware as long as customers want it. The firm also partners closely with software developers to provide front-to-back solutions. It’s all part of delivering on commitments, notes president Gordon Howell. “Customers who receive exactly what they expected are more likely to become repeat customers.”
Likewise, Redengine Inc. (#14, 2x) says its expanding ability to serve as a one-stop e-business shop is key to sales that have doubled each year and climbing. Besides consulting in such top-of-mind areas as brand definition and supply chain management, Redengine offers Web site software that allows customers to control content revisions without sacrificing design — a key combination as sleek, up-to-date sites become the norm. “Our primary goal as a company is to provide value for our customers,” says CEO Tom Ogaranko. “By taking a strategic approach and proactively looking for ways we can add value to organizations, we are less vulnerable to market conditions.”
Cyntech Corporation (#29, 2x) expects year 2001 gross sales to rise 60% above the $4.6 million gleaned in 2000, thanks to new and longer term oil and gas contracts. Behind each gain, says Neale Johannesson, president of the manufacturing and distribution firm, stands “our ‘can-do’ attitude and our willingness to go the extra mile to get the job done for our customers.”
Several of Alberta’s high flyers are reaping the benefits of being in the right niche as the market evolves — and they’re dealing the cards carefully to keep the customers coming.
Having promoted the importance of balance training since 1985, Fitter International Inc. (#25) is well poised to capitalize as media finally pay attention, drawn by the concerns of aging baby boomers. “Fitter is now seen as the original leader or grandfather of functional fitness,” says CEO Louis Stack, who expects continued robust sales of balance balls and other training products. Playing to its strength, the company has negotiated exclusive distribution rights to kindred products, hired a design engineer and expanded its dealer network.
The reality of an aging population is also prompting Pointe of View (#16) to expand its presence in Arizona, snowbird territory — using shekels gleaned in the underserved lower end of western Canada’s condominium market. The only home builder among our 30, Pointe of View is reeling in budget-conscious buyers on the strength of dropped interest rates. “We’ve always said, ‘Why rent when you can own for same price?’” says CEO Randy Klapstein. “Now we can say, ‘Why rent when you can own for less.’” Beyond first-time buyers and empty-nesters, Pointe of View pricing appeals to the growing crop of newly singled, Klapstein adds. “When a home breaks up, whoever’s moving out is looking for something affordable, and we fit that niche. I like to think of us as the Wal-Mart of the building industry.”
While heading toward record sales of 1,800 units in 2001, Pointe of View isn’t betting on 2002. “Consumer confidence is definitely going to be a big factor. Sometimes you can have the best deals, at the best interest rates, but people are not willing to buy,” Klapstein says. So caution prevails, particularly in purchasing land. “Moving forward, we’re trying to think a little bit more carefully. But sometimes that’s hard to do when the last few years have been so bright.”
Market evolution is perhaps most apparent in technology sectors — and here, “revolution” may be more apt. Electronic forms creator Shana Corporation (#20, 2x) attributes its recent ramp-up to widespread acceptance of the Internet as a business tool, coupled with legalization of digital signatures. Cashing in on a similarly rapid adoption of on-the-road laptops, Guest-Tek (#21) has sold systems to more than 100 hotels that allow guests to access the Internet without adjusting computer settings. While still not profitable, Guest-Tek’s gross sales increased 663% in 2001 over 2000.
Similarly, Jet Stream Digital Media Inc. (#30, 2x) is positioning for exponential growth of video on demand as Internet users seek the interactivity already enjoyed in the gaming world. “Our business sector hasn’t been established yet,” muses Jet Stream CEO Jeff Bradshaw, whose gross revenue growth over the last three years was 94%; “the global downturn can’t hurt something that hasn’t risen yet!”
Deregulation accelerated growth at NTG Clarity Networks Inc. (#4), which zoomed from $2 million to $8.5 million in gross sales over two years as new kids on the telecommunications block tapped NTG’s expertise. Now the World Trade Organization has decreed global deregulation, opening international opportunities for similar contracts. The work may ramp up slowly due to the immediate shortage of worldwide capital, notes CEO Ashraf Zaghloul, one of three brothers leading this 200-member firm. “But that is good for us; it gives us a chance to grow with it.”
With four acquisitions in the past year and more to come, NTG is sidestepping downswings in any one client group through diversity and depth. The company aims to ride the knowledge management wave with sales of its “virtual nervous system,” which allows scattered employees to access and analyse data. And it’s partnering with Calgary-based Wi-LAN Inc. (led by yet another brother, Hatim Zaghloul), aiming to be at the forefront of that market. Just as the auto industry turns to Magna Steyr for parts, says Ashraf Zaghloul, “We want companies to come to NTG for services. We’ll do the work, and then they can put their own logo on it.”
Careful acquisitions are fuelling growth for nearly half of our 30, including six of the 13 high techs and nearly all from the resource sector. Those purchases often involve a search for undervalued gems — not only physical assets, but staff.
Wellco (#5), for example says it acquires only units that include “able and motivated” people and relationships. Zi Corporation (#8, 2x) has juggled buys and sells to build an international team that builds multilingual interfaces for wireless and consumer products. Glenbriar (#10) took advantage of technology’s woes to shift away from oil and gas by acquiring high-tech firms with ample equity, at a bargain.
Other oil and gas firms are not only sticking with the sector, but expanding their reach, relying on depth in the management ranks to squeeze profit from underdog properties. Since forming as a junior capital pool in 1998, GEOCAN Energy Inc. has taken that approach, turning an initial half million in cash into annual revenues of $2.38 million. The company has picked up 10,600 net acres in Canada and four times that in the Czech Republic, says president Wayne Wadley. Through due diligence, he adds, “Every deal that the company has entered into in the past three years has been ultimately valued higher than the original acquisition price.”
Such focus is crucial to growth that lasts, says Grant Thornton analyst Brent Driscoll. “Some merger and acquisition is the nature of the game, particularly in public companies. But if you look at the individuals behind the growth, they’re focused in most cases on a particular sector, as opposed to just going out and selling widgets. They’ve all taken a market niche and said, ‘How can we excel at this?’ And through their own dynamics, they’ve been able to capitalize on that.”
SOURCE: Alberta Venture Magazine