Subsidiary Acquisitions Provide Growth
Alaska Native Corporation investment considerations
Arcticom employee Travis Conants changes out a connecter on the ALMR RX antenna at Dot Lake.
Photo courtesy of BSNC
Alaska Native Corporations (ANCs) make up the highest-grossing revenues among companies based in the Last Frontier and owned by Alaskans. ANCs encompassed twenty-two of the Top 49ers in the October 2013 issue of Alaska Business Monthly. The twenty-two corporations collectively grossed over $11.6 billion in 2012, providing more than seventeen thousand jobs in Alaska and nearly sixty thousand jobs worldwide.
Arctic Slope Regional Corporation (ASRC), along with its subsidiaries, is the largest Alaskan-owned company, employing more than ten thousand people worldwide. ASRC has most recently seen a growth in its numbers after the acquisition of Little Red Services, Inc., a service company on the North Slope, in May. Even as Little Red Services becomes part of ASRC, it still operates separate from ASRC’s organically grown company, ASRC Energy Services, in order to protect the brand and management structure.
Dave Gillespie, CEO of Aleut Corporation, says Aleut Corp. tries not to disrupt an organization more than necessary when acquiring a new subsidiary. And in order to find the right companies, Gillespie has a few considerations.
“We have three rules. First, we look for businesses that are related to, but are different than, what we already have so that one plus one equals three. Second, we look for businesses that are the same, but have different customers. And third, we look for businesses that have nothing to do with anything, but are too good to pass up. An example of this is Patrick Mechanical in Fairbanks,” Gillespie says.
Fairbanks-based Patrick Mechanical, one of eight Aleut Corporation subsidiaries, is a mechanical contracting firm with several projects spanning the Fairbanks North Star Borough.
Bering Straits acquired Arcticom, a full services land mobile company, last year.
Photo courtesy of BSNC
Eleven of the eighteen Bering Straits’ wholly owned subsidiaries participate in or have graduated from the US Small Business Administration 8(a) Program. Two subsidiaries participate in the Small Business Association HUBZone Program. The 8(a) Business Development Program—common amongst ANCs as a starting point for subsidiaries—is a program geared toward helping socially and economically disadvantaged firms with becoming competitive in the federal contracting market. The HUBZone Program, or the Historically Underutilized Business Zone Program, provides federal contracting opportunities for economically distressed communities based on various census data.
“A significant amount of Bering Straits’ gross revenue is derived from government contract work. It’s over 90 percent,” says Bering Straits Native Corporation President and CEO Gail Schubert.
The two most recently created Bering Straits subsidiaries are Global Management Services and Global Technical Services, displaying ongoing success and a promising future, Schubert says.
Arcticom at the Ester Dome site.
Photo courtesy of BSNC
Arcticom, previously used by Bering Straits as a subcontractor on various operations, was acquired in October 2013. Arcticom is based in Anchorage and is a licensed Motorola dealer for Alaska. It is a full services land mobile radio systems maintenance company that leases communications towers and sells, repairs, and maintains communications equipment. Bering Straits Native Corporation says it acquired Arcticom as part of a greater effort to diversify Bering Straits’ revenue sources.
Bering Straits says it considers the purchase price and a company’s profitability, among other factors, before acquisition.
“When looking at acquiring a business we consider, ‘what type of business line is it, how could it best benefit Bering Straits, and is it a company that we’ve already grown organically and can complement or is this a new market niche?’ So some of that goes into the strategic planning,” says Bering Straits Native Corporation VP of Business Development Richard Foster.
Bering Straits looks at fellow Alaska Native Corporations in order to explore a new market niche and prevent too much overlap, Foster says.
“All of our brother and sister [ANCs] provide base operations support, and it becomes a price shootout when we go after a base operations support contract. It leaves the company squeezing profit margins down and conceding rates. So typically what I like to do, especially in acquiring a company, is look to see where the competition isn’t,” Foster says.
Bering Straits aims to incorporate a diverse business portfolio with lines into administrative and technical support, IT, construction, and logistics, among others. Foster describes the goal as giving multiple tentacles to the parent corporation in order to succeed as a company.
“And that’s basically the model amongst ANCs, as one business line may be slow, the other business line may be picking up, so it’s cyclical,” Foster says. “You may see a lot of base operations support contracts coming out within a six month period and then nothing for the rest of the year, so then you either target IT, logistics, construction, or renovations.”
Before considering whether to acquire a new company, Bristol Bay Native Corporation (BBNC), looks at its asset allocation, how it fits in its business line strategy, and how well it performs.
“Sixty-five percent of our overall assets are focused on our subsidiary operations, 25 percent in passive investments, and the rest are corporate assets,” says BBNC Senior Vice President and Chief Operating Officer Scott Torrison. “Our four main business lines are industrial services, government services, construction, and petroleum distribution. So before we even start considering something, we’re proactively thinking whether this is the type of business that we want to be targeting.”
Peak Oilfield Service Company is BBNC’s latest acquisition, fully signed on in November 2013. Peak provides an assortment of services including ice road construction, rig moving, rig support, and overland transportation, along with maintenance and operations throughout the oil and gas industry. Peak operates on the North Slope, Kenai, Palmer, Valdez, and in the Lower 48. Torrison says it fits into BBNC’s goal of a subsidiary with a strong customer base, strong and reliable revenue, and solid leadership.
“When we acquire a company, rather than a fixer-upper, we are looking for something that is well established, that we can bring in and connect with BBNC, so it becomes part of the BBNC family,” Torrison says.
In the case of most acquisitions, challenges will arise in adapting a subsidiary to match the operations of a parent corporation. The approach to management, compensation, and efficiency are some of the prime concerns on both sides of the aisle. BBNC brought in $1.96 billion in gross revenues for 2012, with more than 3,600 employees worldwide. A stable company that matches or complements the business line and structure of BBNC is a key factor in finding the right company to add to the mix, Torrison says.
“[Both companies] should be stable as people come over so they feel, ‘OK, we have a new owner, it’s a good thing for us,’ instead of wondering what it means to them. That’s important in any acquisition; the people part,” Torrison says.
As BBNC considers acquiring a new subsidiary, it undergoes a thorough due diligence stage, Torrison says. Management from both companies meet on certain terms of the acquisition, and due diligence comes parallel to the negotiations, in order for the parent company to become versed in all the strengths and weaknesses of a company.
BBNC tries to learn the style and policies of the company leadership and discover their plans for the future. The company strategy, financial and legal standing, and possible issues that may become a real problem all play a large role in the decision making process. Overall, Torrison says, the comprehensive factor is whether the company will be a good fit.
“We don’t just buy to add on to get bigger, we’re looking to acquire or start-up companies that fit within our strategy so that we can progress our strategy down the road,” Torrison says.
Chugach Alaska Corporation reported earning $709 million gross revenue for 2012 in the October 2013 issue of Alaska Business Monthly. Chugach, with twenty wholly owned subsidiaries, looks for companies that can provide quality products and services and benefit from a long-term partnership with Chugach, says Gabriel Kompkoff, Chugach Alaska Corporation CEO.
“Central to Chugach’s acquisition evaluation criteria is ensuring that clear vision and values, quality management, and profitability already exist,” Kompkoff says. “As with the transition of any new acquisition, our approach is not to interfere with the positive qualities that these businesses have already established, but rather to support and empower the company’s leaders to continue growing a successful business with Chugach’s support.”
Chugach’s growth strategy does not only include acquisitions; they are simply a part of it. Like many ANCs, Chugach incorporates organically-grown companies and acquisitions in its goal to strengthen the corporation in support of its vision.
Chugach’s most recent acquisition was in June 2012, when it purchased Hawaii-based service company Heide & Cook (H&C).
“When H&C was struggling to recover financially following the Great Recession, we realized the company would benefit from Chugach’s financial support, but we were also confident that its quality leadership team and reputation for integrity would be a perfect addition to the Chugach family of companies,” Kompkoff says.
After the experience with H&C, Kompkoff says giving the company the power to make decisions was the best foot forward. “Our relationship with H&C has reinforced our strategic growth vision, in which we see ourselves as partners and owners of companies whose visionary leaders are empowered to grow their businesses autonomously.”
Recent In-State Acquisitions
By Russ Slaten
- Arctic Slope Regional Corporation acquired Little Red Services, Inc. in May. Operating in Alaska for over thirty years, Little Red Services provides “hot oil” and other well services on the North Slope. Crews assist producers in increased well flow output, assist with well work-over, and overall assistance in well production.
- Bristol Bay Native Corporation signed an agreement with Nabors Alaska Services Corp., to acquire 100 percent ownership in its subsidiary, Peak Oilfield Service Company in November 2013. Peak is a support services company with capabilities that allow it to support the needs of its customers located primarily on the North Slope, Cook Inlet, Valdez, and North Dakota.
- Bering Straits Native Corporation acquired Anchorage-based Arcticom on October 23, 2013. Arcticom is a full-service land mobile radio system maintenance company. It is the only Motorola dealer for Alaska and leases communications towers and sells, repairs, and maintains communications equipment.
- Bering Straits purchased Alaska Gold Company, LLC from NovaGold Resources, Inc. in November 2012. Negotiations began between Bering Straits and NovaGold to include the reclamation of the Rock Creek Mine, but finalized to include the purchase of Alaska Gold Company and its assets in the Nome area.
- Calista Corporation finalized the acquisition of STG, Incorporated in September 2013. STG held a twenty-year history of operating in Alaska before the acquisition. STG installed about 80 percent of the utility-scale wind projects in the state. In addition, STG provides services in diesel power generation projects, bulk fuel systems, and other renewable energy projects.
- Doyon, Limited acquired Arctic Information Technology, Inc., or AIT, on December 14, 2012. Anchorage-based AIT has provided technical services for customers throughout Alaska and the Lower 48 since 2003. The Microsoft Gold Certified Partner provides information technology infrastructure and business solutions and has received numerous industry awards.
- Koniag, Inc. acquired Anderson Construction in November 2012. Anderson Construction began operating in Kodiak over thirty-three years ago, and has been involved in many of Kodiak Island’s large civil constriction projects. Projects include the Pillar Mountain wind turbines and the Terror Lake Hydro project.
- The Aleut Corporation acquired Patrick Mechanical, Inc. on September 30, 2011. Fairbanks-based Patrick Mechanical is a contracting company specializing in the engineering, design, and construction of complex piping and HVAC systems. Its customers include Eielson Air Force Base, Fort Greely, Fort Wainwright, Doyon Utilities, University of Alaska Fairbanks, Fairbanks Memorial Hospital, and many general contractors that work in Alaska.
Russ Slaten is the Associate Editor for Alaska Business Monthly.
Posted: July 15, 2014