Gates aims for expansion, possible IPO

One of those fronts is an IPO slated for next year, on top of growth via hiring and acquisition, as well as new facilities in the coming years, said Tom Wells, Gates sales director, national accounts, in the firm's industrial replacement and services group.

Those avenues of growth are being driven by Blackstone, a $300-billion private equity group, he said.

As a $4 billion global company, increases in staff or investment were met with even bigger proposals from Blackstone, Wells said.

"Blackstone came in and would say, 'What do you need in order to grow?' And we'd say, 'We need 10 or 15 people.' And then they would say, 'What if you had 100?' We've never been able to think in this kind of scale before," he said.

Realigning the company mindset, Gates pushed toward Blackstone's objective for growth with expanded resources. Gates, which serves both automotive and industrial markets, has seen steady growth in the past few years, partially because of the recovery of oil and gas as well as backing from Blackstone, he said.

Typically, both the automotive and industrial markets work in alternating cycles, keeping Gates diversified.

"This is one of the few years when we're hitting on all cylinders, when all the parts of the company are doing well," Wells said.

Within Gates' power transmission unit, business has balanced out between the original equipment manufacturer and replacement sides. Because Gates has less business on the OEM side, there's more stable, predictable growth, with fewer wild swings, Wells said. Gates' OEM business is up by double digits, partially because of the recovery of oil and gas, and the replacement side is up by 25%.

Part of Blackstone's drive for growth is encouraging more diversity in business, Wells said.

"We're working our way to try to be a more diverse company, to look at new and alternate channel partners that we might not have considered before, or who weren't in our particular focus or wheelhouse," Wells said. "To me, if you're a big and successful industrial distributor, it doesn't matter what you're selling, you know how to go to market. Maybe we introduce our products to those types of channels."

"New and different" might include a company like Fastenal, which is very maintenance, repair and operations-oriented, profit- and plant-focused, Wells said.

"We're introducing starting a more diverse relationship with people like that. That's outside our normal channel, which would be mechanical power transmission or fluid power," Wells said.

Acquisition focused

Growth also will come in a relatively new way for Gates, which has been generally more geared toward organic growth in the past 25-30 years. Wells said Gates will be more aggressive in looking for acquisitions going forward.

That direction already is seeing some results, as Gates purchased the assets of TechFlow Flexibles in June and acquired Atlas Hydraulics in October to strengthen its position in the global fluid power market.

It also means focusing on national accounts and large key consumers, building contractual agreements through Gates' distributor base to work the top industry players, he said.

Another part of Blackstone's growth strategy is ensuring a sufficient amount of engineering support in the field. Gates has shifted from three coverage regions in the US to six, giving managers smaller areas and fewer people to manage to increase their focus, Wells said.

"Now everybody's got eight to 10 people to manage instead of 25," Wells said.

It also includes the encouragement of a "hunter" employee role for the organization: An employee focused on business development who does not have an assigned account base, but instead has a concentration on a specific market or area, Wells said.

The hunter role isn't bound by a particular account base or its ups and downs, and is always looking for new opportunities to get products in, Wells said. Gates is adding employees as field resources and fulfilling the hunter role, specific to particular products within power transmission and fluid power, Wells said.

The company, which currently employs about 14,000 globally, is looking to grow its employee base by about 10-15 percent each year. Though growth in Europe is more settled, Gates is chasing growth in Asia as more disposable income becomes available for a larger population, and automobile use becomes more widespread.

Global expansion

Additionally, Gates has plans for expansion worldwide, Wells said. Currently, a plant is being considered for Legica, Poland, as well as a capacity expansion to a facility in Toluca, Mexico.

"The challenge is that it's going to take a little bit of time to do that," Wells said. "The great thing is that Blackstone is making the investments so that, if you're capacity constrained now, we're going to figure out how to do it, and we're going to do it all around the world."

The factories are planned to be up and running within two years, Wells said. More information on the expansion plans will come at a later date.

"In the past, we've built product in the U.S. and shipped it all over the world, and I think those days are ending," he said. "It's going to be manufacturing in the region for consumption in that area."

Blackstone also is driving a "full pipeline of innovation" for new products, not just in performance, but also meeting the overall needs of customers to keep machinery running with less maintenance and energy use, Wells said.

"Sometimes we've gotten overwhelmed with just continuing to design a better product at a higher price that lasts longer. I think sometimes you have to concentrate on what is something that's going to drive costs out of industry and help them be more efficient, as opposed to always a better mousetrap," Wells said.

Those new products could include more electronic controls, which will give just as much power as is needed for an application, or monitoring during use so that an alert is raised before the product is about to fail instead of causing a shutdown.

"Everything fails in a cycle, but you'll know when that cycle is. You'll know before it fails that it's about to go, so that machine that costs you $40 an hour to run is not down because a thing runs out of life that you didn't know about," Wells said. "I think it means a lot of monitoring equipment, and surrounding our products with electronics that inform, teach and help. That's the evolution of where we're going. Not a longer-lasting product, but more information about the product and the service life of the product."

Central to the push for growth from Blackstone is a goal of an eventual IPO, with Blackstone keeping a portion of Gates as a minor stockholder. Blackstone is working on regulatory paperwork and preparations, and likely will move forward in 2018. More information on the IPO will come as the timeline develops, Wells said.

Blackstone Group purchased Gates in 2014 for $5.4 billion from Onex Corp. and the Canadian Pension Plan Investment Board. As an industrial manufacturing company, Gates was one of Blackstone's first ventures in the sector, Wells said.

The market outlook for Gates is "red-hot right now," Wells said with extremely strong global business.

"It's like when somebody flipped the calendar to Jan. 1, you went from a lackadaisical year the previous year, (to where) everything exploded. Oil and gas came back, all of the markets came back," Wells said. "It's a great opportunity, and it's great to have an economy where the problem is 'How much can you make?'"