Welcome to another episode of Heat Treat Radio, a periodic podcast where Heat Treat Radio host, Doug Glenn, discusses cutting-edge topics with industry-leading personalities. Below, you can either listen to the podcast by clicking on the audio play button, or you can read an edited version of the transcript. To see a complete list of other Heat Treat Radio episodes, click here.
In this conversation, Heat Treat Radio host, Doug Glenn, interviews Nitrex CEO, Jean-François Cloutier, to hear about how Nitrex has been able to expand and rebrand their company while creating mutually beneficial relationships between itself and end-users at a global level. Click below to learn more about the “art of the deal," strength-based management, and global growth.
Click the play button below to listen.
The following transcript has been edited for your reading enjoyment.
Doug Glenn: Jean-François (JF) Cloutier, the CEO of Nitrex, will be sharing his background on how his company reenvisioned themselves in the industry, implementing six initiatives resulting in a transformative rebranding of the entire organization. JF will also talk about what “the art of the deal” looks like and what a mutually beneficial business relationship looks like with GM Enterprises.
Let's start with some background before getting into Nitrex's synergy with GM Enterprises and “the art of the deal.” JF, let's hear a little bit about your background.
Nitrex CEO
JF: I've been in the industrial world for many years. I worked for Bombardier a Canadian train and planes manufacturer, for roughly 17 years. I had my own business for a few years before that. I then worked for the rail division of Caterpillar called Progress Rail; it was acquired by Caterpillar in 2006. I worked for them for 3 years. I wanted to be closer to the family, so I came back and started at Nitrex in April of last year. I've worked in different countries and in different places for both Bombardier and Caterpillar, from Canada and the US to Mexico and China. I've worked in supply chain for some years, so we were involved in supply chain at the time with heat treating services. I was not an expert, but I was familiar with the industry and knew some of the processes, so I decided to join Nitrex.
DG: It's been interesting to watch over the last year or so, to see the progress made. It seems to me you've got a really solid management team in place.
JF: I think it's a well-balanced team between people of experience from the industry that worked at Nitrex for many years. Obviously, Michel Korwin [President at Nitrex Metal and United Process Controls at Nitrex Metal Inc.] staying on board as an advisor was very good for me as he's got tremendous experience. There is Chris Morawski [Special Acquisitions Advisor at Nitrex Metal Inc.] as well, and Paul Oleszkiewicz [Vice President at Nitrex Metal Inc.]. So we have people with lots of years of experience. Even a gentleman like Jason Orosz [President of Heat Treating Services at Nitrex Metal Inc.] that you probably know. Jason has been in the industry for many years and his family business has been involved with Nitrex for many years. Jason is relatively young, he's not even 40 and he's got probably 20 years already in the business. Also, we brought in some people. Olivier Caurette [President at United Process Controls] who is a guy who used to work for Bombardier as well in different fields and different countries; he's quite a global guy. There is Elizabeth D. [Vice President Global Human Resources at Nitrex Metal] from Caterpillar. I think we have a solid team in place. I mean, the team was very good before, as well. But with the direction we wanted to take, with the growth, and becoming a bit more global, we felt the need to bring in people with global experience too.
DG: Let's talk a little bit about the business units that currently exist in Nitrex. I heard the webinar, but why don't you run down through the basic business units of Nitrex. We'll talk about them independently, but let's get an overview first.
JF: Absolutely. Nitrex was founded in 1984 and it grew throughout time organically, but also through acquisitions, and that's how the company, in the end, became vertically integrated with 3 divisions, especially UPC (United Process Controls) will now be branded UPC Marathon, as you probably heard on the webinar. UPC grew through multiple acquisitions, Process-Electronic, and Marathon Atmosphere Engineering. The company Nitrex grew throughout time through acquisitions, and more recently with GM Enterprises. This is a unique position in the market. There are not that many companies vertically integrated with design and manufacturing capabilities like furnaces (that's NTS), heat treating services which is what we call HTS, and United Process Controls (now UPC Marathon) with controls, software and different equipment for the heat treating industry. So, this position is quite unique, and for us, it has been working very well because the goal of the company, or how we present ourself, and that's a bit where the rebranding came from. We presented ourselves as a solutions provider. It may look very wide, but what it means is that we can go beyond selling a product, so we have experts in different fields of metallurgy and obviously people with lots of experience in heat treating. But, we can go beyond selling a furnace or we can go beyond selling a component. When we're approached by a customer usually, unless they want to buy specific components, most of the time there is a challenge, there is a problem to solve. We have to understand the problem, where it's coming from, what's the application and that kind of brings us into understanding a little bit more the component or the application and that's one of the reasons why we consider ourselves a solution provider. We can work with OEMs and understand the problematic and go beyond the equipment itself. Then we can sell them the proper equipment or upload the proper recipe to the furnace, if it's a problem related to that, but in any case, that's why we consider ourself a solution provider. Since we started to grow internationally, and after the acquisition of GM Enterprises, presenting ourselves to the market as a solution provider, we looked at how the company was positioned in the market, in terms of corporate image. We realized that it was probably time to rebrand some of our brand and present ourself to the market with a more accurate image of who we are, and that's what generated the discussions around it's probably time to rebrand. We had the new management team on board and the company, after putting together a strategic plan, definitively we saw a need to diversify as well. So all of this together supported the need to rebrand.
DG: Let's talk a little bit more specifically about your acquisition of GM Enterprises. Address the thinking behind that and the vision that lies ahead for that company.
JF: It is in line with our philosophy of being in the complexity, high range heat treating provider. We're are in a big niche. It is two words that may look contrary, but we are in gas nitriding, and we were known for gas nitriding, but we were a little bit more than that; we have other processes internally. But to go back to the reasoning of acquiring GM Enterprises. GM Enterprises is a lead in their field in the US and it was very complimentary in terms of product for its value with what we have. GM was mainly focused on the American business and Nitrex was more global, so it's a good compliment for GM and for us. And the other thing, and the main thing really, is to be in the vacuum and get in the segment where we were less present, which was the aerospace segment, as well as MIM, defense, and 3D printing. We were not so much in those fields. Nitrex is more industrial, automotive and a slight presence in aerospace, but now with the acquisition of GM, we reinforced those segments. That was a good compliment to the product portfolio, a good compliment in terms of market, and also in terms of company values, were quite aligned. Both companies were born with an entrepreneur mindset and grew like that throughout the years, and despite the difference in size, Nitrex is larger in size than GM, those values are still present in both companies. I think it was a good fit, and the timing was right. I'm glad that Suresh Jhawar, the previous owner decided to stay with us, because obviously he's a library of information and knowledge, same as Michel Korwin and Chris Morawski. So to your point about the management team, yes, it is a good management team and I think it reinforces that point.
DG: I've known Suresh for many, many years and he is a good guy. I do like his entrepreneurial spirit. Let's talk about “the art of the deal.” Very briefly, can you give us a timeline and about how the deal came about with GM.
JF: The discussion started last fall and it went pretty quick and smooth. Suresh and his team are good negotiators as well, so we had some good discussions, but honestly, I think it went pretty well and the deal was completed at the beginning of this year. We started to look at the synergies between the two companies and one of them was definitely the potential to sell GM products in other geographies where Nitrex is a bit stronger. That's why I was saying it was a complement to our product portfolio, but also in terms of market. We started to work on that and started to train our people internally, both the GM sales team as well as vice versa on both products. The Nitrex sales network will definitely benefit GM products, so there is great potential in Europe and China as well. Even though GM has sold in the past in China, at Nitrex we have a sales force there. We have a plant as well as opening a new one in the (15:45) of China, in Ningbo, more precisely. We're expanding in China so that will benefit definitely GM and other products of Nitrex.
I think the future of GM is expanding in geographies where the products were not necessarily sold that much in the past; so leverage the sales network of Nitrex and share the knowledge internally between the two companies. GM Enterprises remains an entity like it was but is now part of the larger group Nitrex.
DG: Can you address the management team over there now? I understand Pontus [Pontus Nilsson] is staying on but you've brought somebody else new into the GM position.
JF: Yes, thank you for asking. We've brought in a gentleman by the name of Larry Jackson. Larry is a longtime aerospace guy. He's been in the aerospace industry for many years in charge of various operations. It wouldn't be a bad idea one day to organize something with him, if you have an interest. But, Larry has been managing aerospace operations for a long time. He joined us about 3 months ago. That was part of the plan when we acquired the company that eventually Suresh would want to start phasing out gradually despite his long years of experience, he is still full of energy and wants to stay around. In terms of succession planning, it was important to bring someone who would want to stay with us for a few years, so we brought in Larry. He has brought in as well a supply chain manager and started to make some improvement in the operation. It is going very well and he is well-integrated as well with Nitrex so operation, best practices, procedures, and processes that we were following at Nitrex are now being implemented at GM. So far it is a successful integration.
DG: You've got a very interesting, succinct, very powerful tag line: “Mastering Strength Worldwide.” You've already talked a little bit about some expansion going on in the Ningbo in China, maybe address for the readers some other things that might be going on, most notably, presence in Europe, Poland and any other places that you anticipate growth worldwide, maybe with the exception of North America, which we can address independently.
JF: We're expanding our plant in Poland or starting to talk about expansion. The plant in Poland is our flagship in terms of design and manufacturing of furnaces. About a year ago when I joined, well, the team before me had started to look at the expansion potential or possibility, so we moved forward with that project. That is going to double our capacity. Right now, obviously, we're going through some challenges in the economy in general, however, the business is good for Nitrex and we still see lots of potential to grow, so we decided to pursue the expansion of that plant which should be completed before the end of this calendar year. That is a very important project for us. The other one I mentioned is Ningbo in China. We already have a site in Wuxi, China, west of Shanghai, there is some demand in that area of China, and others. But we're starting with Ningbo after discussing with our partners in China, our team there, as well as some customers, we decided to move forward with the expansion. That should be ready some time in the Fall as well. Again, in line of strength and growth, I'll explain a bit where we're coming from with Mastering Strength. In terms of expansion, we see ourselves expanding in China; in Poland, which is our flagship site, we'll continue to grow.
We are investing in the US, as well, in our Chicago plant, which is an important operation for us. We signed, as well, a rep agreement with a company in India which was a geography where we were not so present, so we're making some steps into India as well. So far, it's a story of growth. There might be some other acquisitions. I cannot talk about it right now, but we're still looking at growing.
DG: These expansions internationally, the Ningbo and Poland, are they for heat treatment services, are they for equipment, or are they for controls?
JF: Good question. It is for NTS, Nitrex Turnkey Systems, so for furnaces, as well as United Process Controls. We're making more space for both divisions. And I should think we have some heat treating services capacity there, but the floor is mainly used for furnaces as well as for UPC. So that site is becoming our main site within Europe to supply our customers.
DG: Is there anything more you want to address as far as growth internationally?
JF: No, I think on the international side, we talked about India, China, which we are seeing now a strong comeback in China after the situation being a bit more under control in terms of Covid-19, so there's a rebound in China. So far, Nitrex has gone through the storm quite well. This company has been through different storms in the past, like in 2008/2009 for instance, and because this integration of three different divisions, I think that's one of the key success factors of this integration. When customers sometimes delay some decisions, then our other divisions do well, so we compensate. The synergy between the three and now we will integrate a little bit more a “cell network” between the three companies, so that will help us going through future storms, if any, but we will be even better prepared on the global scale to face that kind of storm. Also, in terms of manufacturing capability, we have the capability to manufacture in different sites inside the Nitrex group, so that should help us get through potential storms in the future.
DG: You were talking about plant expansion and Chicago. Let's use that as a segue into discussing North America plans a little more.
JF: In the US, we have different HTS – site heat treating services – with UPC. We also have United Process Control as one facility in Milwaukee. But, we are investing in our Chicago site with Nitrex equipment but some other processes as well that we will be talking in the near future that's underway. We're expanding the infrastructure: Chicago is a good location for us, well located close to different industries. We're serving industry all companies as well as automotive jobs there, so we saw the need to expand there. This site, and others, will also grow. We equip some of our sites with our own equipment, with Nitrex equipment. We have other processes, although most of our sites are, in general, equipped mainly with Nitrex gas nitriding furnaces. That's one of the reasons we were interested in GM as well. It was a good diversification for us. We were not so present in aerospace, and now it's a good balance between aerospace, automotive, industrial... We started to see some growth in defense and that's a segment that we are going to keep an eye on. When we put all this together, that's why we decided to keep investing in Chicago. Our site in Indiana we simply equipped with an additional furnace. Michigan, where we serve the automotive industry, but also industrial, there is some growth plan there as well. In general, that's why the story has been quite good the last year, it's been a growth story.
To go back to your point about mastering strength. We put a group together, and we tried to identify the values and what are the elements that bringing the three divisions together under a similar or harmonized set of values, and that's what people came with. We have strong processes, we have strong people in the company, strong knowledge that was accumulated for years that we gained through working with different OEMs, but also people with a lot of experience still with us. The word “strength” was coming often, so that's why we decided to build more on that. That's why you'll see more and more mastering strength. It's based on strong processes and strong people. We make parts last longer and stronger, etc.
DG: I also liked your 'LEAD' acronym that you used in the webinar- leadership experience agility and diligence. Diligence is one of those things not often remembered as a real virtue. Sometimes, you have to just stick to it, you know?
JF: That's part of that focus group we put together. They came up with different values and when we summarized them, we found it interesting that they made the word 'LEAD'. It was a characteristic of the people here. I was really proud of the team. Agility is also a good one, because at times, especially in the situation we're in right now, I think remaining agile despite the growth is something we always have to keep in mind. Always keep the entrepreneur and customer service.
DG: I think we've covered all of these things, but I'll just throw these out because I thought this was a good slide that I captured off of your presentation. You have- initiatives that we've started, and there were six items there and I think we've hit on all of these, but if you want to expound on any of these, let me know. There was increased production capacity, expand heat treat services capacity, expand global footprint into new geographies, optimize sales network and good market strategies, implement modern management systems and selectively pursue M&A opportunities. Of course, that one is of interest to me but I can understand your reservation to be cautious on that. Does anything jump out that you want to expand on in those six?
JF: Like you said, I think we covered the essence of most of them. We're investing as well in a system because as we're growing and bringing on board, like GM for instance, there is a need to make sure we are connected all together and that we speak the same language in terms of financial language, but as well as operations, so metrics, etc. So we're implementing a system. And that leads to connectivity. We talk a lot about connectivity these days, but first internally, we have to make sure that we are all connected so that we can keep growing with a solid platform. Then, when we make other acquisitions, we will make sure that we have a management system in place that allows us to quickly integrate any other companies. But it leads also to connectivity.
You were asking me earlier where I see the future. Definitely, digitalization and connectivity is something that will be quite important in our industry and for us. When I look at different OEMs, what they're doing, and after I've worked for many years in OEMs, definitely the complexity of supply chain, velocity of supply chain is increasing and the OEMs want to have fast response with no disruption in their operation, and heat treating is part of their supply chain. So, we need to adapt. They are getting into connectivity; Caterpillar is doing it and many other OEMs, so I think that's the future of the heat treating industry. At least for Nitrex, we are moving in that direction of having our equipment connected and making sure that all our sites can be managed in the standard way. But connectivity to the equipment, having assets connected, etc. So that's something we're investing in R&D now.
DG: Two final things. One if you can speak briefly to Novacap and their role in all of this and then I've got one other question after that I want to spring on you and see what you think.
JF: Novacap invested in Nitrex, becoming a majority shareholder in 2015. Novacap is a leading private equity firm in Canada. They are basically composed of operators, so people who've worked or managed companies, a lot of them are part of Novacap team. It's a really good partner for Nitrex because obviously they are interested in the operations. They get involved when needed, but they leave enough space for the management to maneuver. They were obviously instrumental behind the deal with GM Enterprises and other deals potentially to come. So far, it's a very good partnership. It's more than a partnership actually; they are our major shareholder.
DG: Do they have a 51+, if you don't mind me asking?
JF: Yes, they are a majority shareholder.
Another advantage is within their portfolio of companies, they invest in different companies and we are working with some of them actually. Some are in the projects to double up for their capabilities for Nitrex, so it's been a good marriage so far.
DG: Here's the question I want to spring on you. I've got a big smile on my face because it's not a hard question to answer. I just like getting a little bit more on the personal side of things. You've been with Nitrex a year. What is that excites you most about the future? And secondly, what is it that's keeping you up at night, in the sense of, what are you worrying about?
JF: Let's start with the first one. While it's a global company with tremendous potential for growth – its amazing products, a good reputation, solid people on board, I think there's a good recipe here and lots of knowledge here in the company. – there is great potential to be better known to the OEMs because of the knowledge in metallurgy in this company in heat treating. Our people can go way beyond just selling a product. There is a lot of potential and that excites me a lot. I think a global team, a company of that size with a heat treating business, there are not that many, so that's very exciting.
Things keeping me up at night – I think we should always remain alert and agile with what's going on in the market, so not that it's keeping me up at night. But, when we go through challenges like we're going through right now, we need to move at a faster pace on many initiatives and that's why we are launching, or we have launched, multiple initiatives, some I shared with you here. That's part of remaining agile. It's good to be challenged and it's good to stay always on the edge because the market is changing, and it forces us to adapt and fast. I like that actually. My management team likes it. They don't like to be in the comfort zone.
I think the key takeaway that I would like your readers to remember Nitrex as a solutions provider going beyond the sale of a product. We can get involved and help customers solving complex engineering problems and that is how we want to present the company to the market and our customers.
Read more about Nitrex's rebranding: https://www.heattreattoday.com/industries/manufacturing-heat-treat/nitrex-reveals-new-brand-identity/
Read about the July expansion in at the Illinois plant: https://www.heattreattoday.com/equipment/heat-treating-accessories/vacuum-pumps-gauges-valves/vacuum-pumps-gauges-valves-news/commercial-heat-treater-expands/?oly_enc_id=
To find other Heat Treat Radio episodes, go to www.heattreattoday.com/radio and look in the list of Heat Treat Radio episodes listed.
