When TC Transcontinental, Canada’s largest printer with more than 8,000 employees, was looking to streamline its financial processes, optimize its cost structure, guide its transformation, and upgrade its information technology to support the corporation’s growth, it hired Nelson Gentiletti as its chief financial and development officer.
Gentiletti came to the printing giant in 2011 after cutting his teeth with Deloitte and working for a variety of tech and entrepreneurial companies.“The chairman of the company was the founder and he was transitioning the chairmanship to his daughter,” Gentiletti says. “His daughter was vice chairman of the company but she also played a role in the company having the responsibility for strategy and corporate development. As a result of her transition, it was decided to broaden the role of the chief financial officer to encompass all of her functions, which meant strategy and mergers and acquisitions as well as IT, to create a more strategic role.”
These days, Gentiletti’s main project is the execution of initiatives surrounding the transformation of the company. He maximizes the amount of money coming in from the company’s core printing business and deploys capital in its new growth segment of flexible packaging. Here, Gentiletti outlines the keys to keeping growth without alienating the people that got TC Transcontinental to where it is today.
“We have the ability to finance our ambitions without seeking permission from our bankers.”
1. Assess your portfolio and dominate
With the financial crisis hitting in 2008, and the recession that followed, TC Transcontinental did an assessment of all of its assets, taking into consideration how the market disruption and technological changes in the media space would alter its portfolio.
“If you’re deep in a business that’s going to suffer some secular decline because of disruptions due to the technology, the one thing that you want to do is to pick the market segments that will least be impacted and to be the dominant player in that market,” Gentiletti says. “So make sure you’re the last person standing in those industry segments. The other thing that we did as a part of that reflection was to ensure we deployed capital to become the most efficient possible and create a high barrier to entry.”
“Our print business is $1.5 billion in revenue today, and it was $1.5 billion in revenue back then,” Gentiletti says. “But out of that, there is $400–$500 million of revenue which were sold, and there’s $400–$500 million of revenues that were acquired in line with that strategy to strengthen two verticals and exit certain markets.” Today, there are four verticals where the company is number one in Canada.
2. Create a high barrier to entry
Once the company identified the verticals it thought could be winners, it doubled and tripled down on its investments to become more efficient and create a significant barrier to entry. From 2007 to 2010, TC Transcontinental invested nearly $800 million in its print platform to execute this strategy.
“This strategy enabled us to go from 54 factories to 23 factories to generate the same amount of revenues,” he says. “By doing that, we increased profitability by 67 percent and created an insurmountable barrier to entry,” Gentiletti says. “It also enabled us to consolidate the market by acquiring our largest competitor in Canada.”
3. Identify where you can leverage your strengths
Gentiletti and his team decided to focus on existing assets, disposing of businesses that no longer fit TC Transcontinental’s strategy, and looking at deploying capital in a new growth segment.
“The good news is that you have a business that is difficult for competitors to come in, and that generates a lot of free cash flow,” he says. “The bad news is you’re in an industry that has got some secular-decline characteristics and certainly doesn’t have a lot of growth. Being a public company, and as well for the family that has a controlling interest, no growth is not really an option.”
The next step was going through a reflection strategically with the family, with the board, explaining what it was going to do going forward. “We spent well over a year-and-a-half identifying businesses where we could leverage our strengths, which are basically focused on manufacturing in a batch process and where the customer values the proximity of the supplier relationship. This minimized the risk of products being displaced to Asia or other parts of the world,” Gentiletti says.
TC Transcontinental quickly eliminated complex, engineering-focused manufacturing and low-end commoditized manufacturing along with other packaging segments such as aluminum cans, glass packaging, and cardboard boxes that had associations with offshore solutions.
“We zeroed in on plastic flexible packaging,” Gentiletti says. “Eighteen months later we came to the conclusion that we should enter this space. Following board approval we began to look for potential M&A targets. Since we made that decision, we’ve acquired two companies in the flexible packaging space and we’re now generating about $300 million of revenues from those new businesses. We have no specific target, but we would hope over three to four years that that business is going to double or triple.”
4. Retain your top talent
Certainly, with a successful business like TC Transcontinental, it has winning qualities to attract and retain talent even with the secular-decline characteristics of its industry.
“This company has always been managed as a very high-performance company but always taking valuing the contribution of its employees in a team-based work environment,” Gentiletti says. “The company is driven around four key values of which employees are at the center of. This includes listening to people and creating a platform where people can contribute and voice their views. To me, you always retain and motivate people based on the intangibles because all the other things—pay scale, recognition, and awards—are easily replicable. That’s been the success of the company.”
Although the company is publicly traded, it is a family-controlled company that wants to keep the same family values in place that made it successful from its beginning some 40 years ago.
5. Never forget about the balance sheet
It’s great to have ambitions about investing in the old business to be more efficient and to grow, but to truly create a platform where the company has the wherewithal to finance what it needs to finance, a strong balance sheet is necessary.
“Today if you look at this company, it produces a lot of free cash flow and it has very, very low debt levels. Basically, if we didn’t acquire another company, we could pay off our debt probably in less than 18 months, which is fantastic,” he says. “Not only do we have great ideas, not only have we got talented and motivated employees, not only do we have strong client relationships, but we have the ability to finance our ambitions without seeking permission from our bankers.”
“When we call on companies to acquire and they study our balance sheet, they’re more likely than not to take our call and meet us because we do have an ability to pay for what we want to acquire,” Gentiletti says. TC Transcontinental is a great Canadian story that has built a strong franchise over the last 40 years and is in the process of successfully transforming the business led by the second generation of its founding family.