Winning at the Public GameBy Joanne Costin
Article Date: 03-01-2010
Copyright(C) 2010 Associated Equipment Distributors. All Rights Reserved.
Rocky Mountain Dealerships CEO Matt Campbell talks about life after going public.
In 2007, Matt Campbell and Derek Stimson faced a similar situation. With no family members in the business, they contemplated what would happen to their dealerships if either met with an untimely death – both were in their late 50s. Campbell was at the helm of Hammer Equipment Sales, Canada’s largest Case Construction and multibrand construction equipment dealership, while Stimson focused his efforts on Hi-Way Service, Canada’s largest Case IH agricultural equipment dealership.
“We had 300 employees and families that ate off the business,” said Campbell. “We felt a great obligation to set the business up regardless of what would happen.”
Going Public was a Succession Plan
Campbellfelt the best and really only option for the company was to go public. The two companies merged and on Dec. 20, 2007, Rocky Mountain Dealerships stock traded for the first time for $10 per share. Top line revenue was about $300 million for the company. A little over two years later, the company has doubled its top line revenue and remained profitable, despite the worst financial and economic crisis of the last 100 years.
The company now owns and operates a network of dealership branches located across Alberta, Saskatchewan and Manitoba. Prior to going public, the dealerships were multibrand, but the Case dealerships are now in the process of becoming stand-alone dealerships featuring both agricultural and construction equipment. In larger markets there will also be multibrand dealerships in addition to the Case dealerships.
There has been a good deal of consolidation among Canadian construction equipment dealers, and Campbell acknowledges that with its major competitors such as Finning, Cervus, and Wajax being public entities, there was difficulty matching their ability to generate capital. “Your access to capital as a private business is earnings and that’s it,” he declared.
Rocky Mountain Acquisition Strategy
The funds generated by the initial stock offering and subsequent stock offerings have fueled growth for Rocky Mountain Dealerships. The company is focused on both organic and acquired growth in Western Canada but is also considering opportunities in the agricultural sector and oil and gas energy corridor, from the Arctic Ocean to the Gulf of Mexico, to the eastern slopes of the Rocky Mountains.
“Currently our strategy is to concentrate on consolidation in Western Canada and once that is done we will probably look south,” said Campbell, who is clearly not ruling out a move into the U.S. While the company currently has no U.S. locations, it does business with many companies south of the border. Rocky Mountain is constantly monitoring exchange rates to anticipate their impact on business.
Access to capital has allowed the company to make several acquisitions, including Roydale International, Miller Farm Equipment, Lakeland Implements, Heartland Equipment, Enns Agri and Mayor Equipment, all Case IH dealers. The market for agricultural equipment is currently good for Rocky Mountain, and so that has been the company’s focus. Ag currently represents the bulk of top line sales, but Campbell does not rule out acquisitions on the construction side of the business.
The Alberta Construction Market
Economic growth contracted in 2008 and 2009, and although the construction market is soft in Western Canada, Alberta is expected to fully recover and continue to lead the country in economic growth over the long term. An upward movement in energy prices as a result of increased demand from a global economic recovery will spur development. The Canada Housing and Mortgage Corporation estimates that housing starts will increase from 17,950 units in 2009 to 30,000 units in 2013.
“We are way down on our construction sales and volumes,” said Campbell, “but we have our inventory aligned with the current reality and it will turn up.” Campbell sees production ramping up in the oil sands, and that will bring more workers and population to the area, which will, in turn, drive the economy. While there currently is work, there is not enough to meet the current capacity. Rocky Mountain’s construction customers are more involved in residential and retail developments in Alberta, more so than the oil sands.
Although infrastructure spending is on the rise, 2010 Alberta budget calls for investing $7.2 billion in capital projects, Campbell hasn’t seen much of an impact on their business from stimulus dollars; most of the dollars went to other provinces and it is a drop in the bucket compared to the total size of the market.
“We are keeping our good people and all our stores and branches in the key areas, and when the market turns, or more realistically, when the work and equipment are sized up in a balanced order, the business will return,” Campbell said. He is not looking for any improvement in construction until 2011.
In general, the Canadian banks are in far better shape than their American counterparts, so the tightened credit hasn’t been as big of an issue in Canada. “The banks in Canada have always been conservative,” said Campbell.
RockyMountainlaunched the CNH Capital Summit Account in 2009 as a way to simplify the purchasing process for their customers and also improve cash flow. The account can be used at any of the Rocky Mountain branch locations.
Managing Acquired Companies
To ensure the success of its acquisitions, Rocky Mountain insists on the involvement of the former dealer principals. The company will generally offer the owners cash and 50 percent stock in Rocky Mountain because it wants them to have a stake in the business. “We don’t tell them there is a new sheriff in town and now you have to be in the office in the morning at 8 o’clock,” said Campbell. “These guys are professional businessmen.”
When Rocky Mountain acquires a dealership it focuses on improving the market share and profitability of the acquired companies by encouraging them to invest in parts, equipment and people to grow their business. A comprehensive financial statement for each business guides them in improving underperforming areas.
“We really work hard to coach the people to get it on track,” said Campbell. Divisional managers look after six stores and are required to visit each branch at least once a month to go over the financials. They have also kept the local brand names, while still maintaining a consistent brand image for Rocky Mountain.
Historically, construction equipment dealerships have been more profitable than agricultural dealerships, but Campbell is out to change that. “We think the opportunity is there for ag to be as profitable, if not more profitable, than construction distribution, because there are fewer players,” maintained Campbell.
In the competitive Alberta market, Rocky Mountain does battle with some formidable competitors. “There are no gimmies in this business,” said Campbell. “Almost every deal is a new deal, and they are hard fought deals.”
The company has opted out of the rent-to-rent business, believing that this is a completely different industry from the construction equipment dealership. “Rent-to-rent in our market (Alberta) does not mix with an equipment dealership,” added Campbell. “The current pricing in the rent-to-rent business is “terrible.”
The Dealer Makes the Difference
Today more than ever, the Rocky Mountain CEO contends that the onus is on the dealer to provide a competitive edge through customer relationships, 24/7 service and competent service. “Thirty or 40 years ago there was a substantial difference in quality, and today that has almost disappeared. Younger guys are not as brand loyal, because they have no need to be.”
When asked what it takes to be successful, Campbell didn’t offer any quick or easy routes. “The biggest thing is training, training, training, and working on the numbers,” he said. “Business management, safety issues, you name, it. You’ve got to be there. It is just hard work.”
As challenging as the current downturn may be, Campbell believes a depressed market also creates great opportunities. “People will establish themselves with these opportunities and they will eat off those opportunities that they created for themselves in this market for the next 40 years,” he said. “In the worst of times, those are the times of opportunity.”
As a consolidator and public company, there will be pressure for Rocky Mountain Dealerships to grow. However, their leader is adamant that the company will be disciplined in its approach and in what they will pay for companies.
Advice for Dealers Considering Going Public
For dealers thinking about going public Campbell advises them to be aware of the risks and expense.
“It’s not for the faint of heart,” said Campbell. Rocky Mountain Dealerships’ initial public offering was a year in the making and cost nearly $10 million dollars in professional fees and commissions. “Things can fall apart at the last minute, leaving a dealer out on the limb for millions of dollars.”
Since going public, life is clearly different for the man who operated in the private sector of business for more than 30 years. “Dealing with public company issues is a huge change to your life,” explained Campbell. “Your role changes 180 degrees. Ninety percent of my time is spent with investors on public market stuff. You are not doing what a typical owner would think of himself as doing.” Instead Campbell relies on his management team to continue running the day-to-day aspects of the business.
Despite the challenges, Campbell finds that going public is a rewarding end to his business career. He has learned a lot through the process. “I am a much smarter investor than I ever was, and I thought I was good.”
Indeed, Campbell may be new at this game, but it didn’t take him long to get Rocky Mountain Dealerships on a winning streak.
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