Born and raised in Edmonton, Gomes earned his degree in civil engineering at the University of Alberta. He joined Stantec in 1988 as an urban land project manager and rose through the ranks to become president and CEO in 2009. Always acquisitive, the consulting and engineering firm landed a big one this spring with the US$795-million purchase of Colorado-based MWH Global, a specialist in water infrastructure. Now comes the task of integrating MWH’s 6,800 employees into the 15,000-strong Stantec fold. The deal is expected to add more than $1 billion a year to Stantec’s top line ($2.9 billion in 2015) and extend its reach overseas.
Stantec acquires a lot of other engineering, design and consulting firms, and you’ve said in the past that 80% of those deals go well. How do you ensure that happens?
For us it boils down to leadership engagement. If the leaders [at the target company] really see the value in merging the companies and live those values enthusiastically, their staff will see that and get excited. Then it usually will be a success. Eighty percent work as well or better than we expect them to, about 10% don’t work as well as we expect them to and about 10% fail miserably. In those failures, it was usually a case where the leadership thought this was a good idea, but when they really got into it, they realized it wasn’t what they expected. The way we acquire companies, we fully integrate them. There’s no debate. They become Stantec.
They drop their branding and so on?
It’s so much more than branding. It’s really integrating their leadership into our leadership and their people into our structure—really becoming one company. And that’s just not an easy thing to do. It is emotional. It involves change, and human beings don’t like change. The leaders have got to understand that. They’ve got to embrace the fact that this isn’t going to be easy. This is going to stress us out. But at the end of it, we truly will be better together. Where we fail is when people say, “Well, this isn’t what I signed up for.” That’s why we try to be really clear throughout our process, setting those expectations of what it’s going to look like.
You recently bought MWH Global, by far your largest acquisition. How long had you been pursuing them?
We’ve known them for at least a decade. Around 2006, 2007, they were considering going public, and my predecessor, Tony [Franceschini], had had discussions with them, giving them advice and trying to convince them to join us. They decided not to pursue the IPO because it was a bad time to do that. Our strategic plan was adjusted last September, and our board said it’s probably time we started considering firms that have more of an international footprint, so they gave me the green light to go out and start talking to some of those firms. MWH was the first company I phoned, because I have known their CEO for quite a while now. He agreed that, yeah, it would be a good idea to get together and talk. It was about two weeks after that that he phoned back and said they had decided to formalize the process and hire an adviser, and that we were invited to participate. We were lucky enough to convince them by February to go exclusively with us. Near the end of March, we announced [the deal] and closed it just a few weeks ago. So it was really quick—definitely a very intense process.
Obviously you’re very experienced in the acquisition game, but this US$793 million deal was on a scale you’d never done before. Were there any wrinkles this time that were new to you?
It doesn’t matter how experienced you are. There are always new wrinkles. They were a much bigger, international firm. It was a competitive process. So that really challenged us to reach decisions more quickly, and that certainly took up a lot of our team’s time. We had to bring in some advisers, which we normally don’t do, to ensure we were carrying out our due diligence and fiduciary duty.
Who were you negotiating with?
It was employee owned—1,400 shareholders. We negotiated with the board of directors, which was made up of MWH’s senior leadership.
Are they now Stantec shareholders?
It was an all-cash transaction. We hope they took some of that money and bought shares. They’re now employees of Stantec. We tied up seven of their top people with employment agreements to ensure they stick around.
You’ve already done two more acquisitions since MWH. But in the past year, Valeant Pharmaceuticals has given the roll-up model a bit of a bad name. How do you ensure deals like this really do drive profit growth?
In our business, we don’t produce a product at all. Our product is our staff’s expertise. So it is a much different business than Valeant’s. We’ve always shied away from the term “roll-up” because what we’re rolling up are people. We’re focusing on working with [acquisition targets’] staff and the relationships they have with their clients. In very few cases are we looking for cost synergies. We really want to look at revenue synergies: where we can win projects together that we couldn’t have won individually; where the firms can sell more services to the client. So it’s a much different value proposition from some of the other businesses that are focused on acquisitions. We’ve done more than 100 acquisitions over the past 20 years, and we have shown that it’s a sustainable model.
How will your business shake out geographically going forward?
About 30% of our business will now be here in Canada, about 50% of it will now be in the United States, and then about 20% of it will be global. It does increase the global footprint to be a much more significant piece. Prior to MWH, our footprint outside North America was only 3%. It’s still a small part of our business, but a large platform from which to continue that growth.
Can we expect to see acquisitions of companies based completely outside North America?
Yes, that’s part of the strategy. What we’ve done in Canada and the U.S.—we’ll expand that strategy to do the same thing in the U.K. and Australia.
What are some of the advantages of being big in the design space?
In some of these larger and more iconic projects, you need a lot of expertise. You need a lot of engineers and architects and scientists. And for most of these projects, what clients are looking for is, “How many of these have you done before?” Be it a water treatment plant or a bridge or a hospital, if you don’t have one in your portfolio and can show that you have staff who have done it, you will not be winning the project. Size allows you to have that in your portfolio.
Running a global company like this from Edmonton, you must have to make a lot of flight connections.
It’s not as bad as people think. Out of Edmonton you can fly to half a dozen cities in the United States directly: Denver, Chicago, L.A., San Francisco, Houston. You fly to those locations, and you can fly anywhere in the world with one more stop. And we have a pretty distributed leadership team. Our COO is out of Lexington, Ky. We have people in Vancouver, Calgary and now Denver on our leadership team. It’s only Dan Lefaivre, our CFO, and I who live in Edmonton.
You’re building a new head office, correct?
Yes, we’re getting it built for us. We’re just a tenant. We have about 1,300 people right now in five different buildings around the city, so we will consolidate them into one office in the late summer of 2018.
Is there a cost savings in consolidating in that way?
There probably isn’t a cost savings on the square footage because we’re locating in a much more iconic building that’s being built downtown in the arena district, called the ICE District, in Edmonton.
I hear it’s going to be the tallest skyscraper in town.
It’ll be the tallest west of Toronto, actually.
People talk about the curse of the skyscraper: Building a big, iconic headquarters doesn’t necessarily bode well for the company. That seemed to happen to Encana with the Bow in Calgary. Do you ever worry about that?
All we’re doing is leasing the space, so we’re not taking the risk of building it. We took a pretty close view of our need for long-term space in Edmonton, and if we’re going to continue to grow as a company, we’ll need a location to do some things that are better done in a central spot than distributed around the city.
I’ve seen Stantec trucks parked in my neighbourhood with “archeology” marked on the side. Your practice must include some very esoteric niches.
People still look at us as an engineering firm. We’re much more than that. We have archeologists, paleontologists, nurses, doctors, and industrial hygienists. It’s a very diverse company providing really diverse services across a pretty broad spectrum. There are no stats or figures on the largest archeology company in Canada, but I’d say we have to be pretty darned close to the top.
Good to know somebody’s creating jobs for archeologists.
On the Trans Mountain Expansion project for Kinder Morgan, archeology is one of the bigger services we’re providing. We’re completing the archeological impact assessment, which includes around 21,000 shovel tests to identify any buried archeological sites along the B.C. portion of the pipeline route. It’s a big job. On any given day, 40 to 50 team members will be working on it.
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