By SEAN SILCOFF
Monday, August 5, 2019
Canadian entrepreneurs have built fortunes consolidating industries from software to convenience stores. During his 18-year tenure at the helm of Montreal's Stella-Jones Inc., Brian McManus has done the same in the unglamorous business of treated wood products.
Through a series of acquisitions (19 in total), he turned the Montreal company into a North American leader in such products as railway ties and utility poles.
Those deals helped increase sales to more than $2-billion from less than $100-million and expanded earnings per share 25-fold.
The company has also achieved a cult following among investors for its returns: the share price has gone from $1.10 to more than $40 in the past 15 years, making Stella-Jones "one of Canada's greatest growth stories," Odlum Brown analyst Cory O'Krainetz said in a recent note. (Only one of the 239 stocks currently in the S&P/TSX composite index has performed better over that span: Constellation Software Inc.)
Last month, Stella Jones announced Mr. McManus will depart in October. The Globe and Mail spoke with him about his impending departure.
Why did you decide it was time to leave?
There's no real driving reason.
People have been looking for this backstory, like "Oh, you had a fight with the board." It's none of that. I'll be 52 in September. I just came to the conclusion if I ever wanted another chapter [in life] now was good, and we have an extremely strong team in place. The outlook looks good, there are still other acquisition opportunities. I didn't want to be leaving at a peak.
Over the past five years as I've been approached for different things, you start thinking, "Maybe one day." I had lots of discussions with my wife, she has been extremely supportive. We do a lot together like trail running and cycling. You can imagine with all the travelling I do, she's excited for me to take a break and actually disconnect for six months. That is what I promised her.
I'm comfortable with my decision, both personally and from a career standpoint. But most importantly for the company, I'm comfortable as well. I used to always say one of the things I was most proud about is I've never voluntarily lost a member of my senior team. The irony of that is I'm actually the first member of the senior team leaving the company.
The market seemed surprised by your departure and the stock sold off. Why didn't you telegraph your decision earlier?
I think the market may be a bit jittery and not necessarily for any good reason. Somebody asked me, "What do you think about the share price?" And I made the joke, "I think it's a good [buying] opportunity." I've been fortunate that I've led a fantastic team. My not being there is not going to change the direction of the company. I believe if Eric [Vachon, the chief financial officer who will become interim CEO while the board searches for a replacement] takes over he'll do a fantastic job. In terms of the timing or communication to the market, I felt the right way to do it was, everybody got advised at the same time from the board to employees to investors. It's not like I'm out of here in two weeks. I'm here every day for three months and working hard to ensure a smooth transition.
Will you stay on the board?
No, I don't think it's fair for either Eric or the next CEO because I would just be kind of the default and go-to guy for the board.
If the board asks what you would recommend in a new CEO would you say 'Just find someone like me,' or would you recommend a different type of leader?
That's definitely something the board will need to think about. I would suggest finding someone that can maintain our culture.
Some change is always healthy and good for a company. But one of the things we have is a strong team that works well together. My only word of caution would be, whoever does come on board should have a good understanding for the culture and that's why personally I think an internal candidate will probably end up being the best.
But I don't want to make the decision for the board. They're going to follow a process and I fully respect that. I have my strengths and weaknesses like anybody else, so I don't necessarily say it has to be somebody just like me, but I think it has to be somebody that understands what we're about. Someone like Eric, for example, certainly understands it.
What are you likely to do next?
Take on another CEO job, join boards, advise other companies, invest?
I've been thinking about that a lot. I think it could be a combination of a couple of those things. I enjoy operating a company, so I think I'll probably look for something that gets me not only leading a company, but also the opportunity to become a good stakeholder in it. I've promised six months downtime to just listen to what are the opportunities that may be out there, and we'll see what makes the most sense.
Stella-Jones has been a growth stock for a long time, but in the past four to five years it's been range-bound. What would you say to an investor who's concerned Stella's days as a growth stock may be behind it? I'm comforted knowing that I'm going at a time when there's a good runway ahead of us. I think there are multiple acquisition opportunities. We've faced some headwinds over the last two years that ... are starting to move to the back of us. I see in the next 12 to 24 months, we'll have some good tailwinds in almost all of our major product categories. It is going to be very positive.
You have about 50-per-cent market share in rail ties and close to 40 per cent in utility poles. Are there still good acquisition opportunities or are you maturing in those categories?
We're more mature on the tie side, but I think there's a couple we could do. On the pole side there are still some consolidation opportunities and that's where I fully expect we'll see growth in the next two to three years. I'd say we're not done yet, we're probably in the seventh inning for our key product categories in terms of [acquisition] opportunities.
You're now in other areas like residential lumber and logs. Do they offer the same growth and consolidation opportunities as rail ties and poles?
On the residential lumber side, which is that other leg of the stool that has seen some great growth, we'll continue to see some good growth within the Canadian market where we've become close partners with the big box stores.
Whether or not that can translate into a move into the U.S., I think there's a question mark there. I don't necessarily think it may be the way the company will go, but that will be a decision for whoever is at the helm.
What do you think you'll miss most about Stella-Jones, other than the people?
I guess the day-to-day excitement. Being a CEO, it's definitely going to be a big shift for me, going from 24/7, always on, to suddenly not having that responsibility. I'm probably going to miss it in some ways but then on the other side maybe I won't miss it. I know it sounds like a funny answer.
But there is an excitement of leading a company that you certainly enjoy.
This interview has been edited and condensed
CEO Brian McManus oversaw 19 acquisitions during his 18 years at the helm of Stella-Jones Inc., increasing sales by more than twentyfold. He takes great pride in the company he guided, but he's confident he leaves it in good hands as he prepares to exit in October.
DARIO AYALA/THE GLOBE AND MAIL