Seven years ago, Calgary chartered accountant Mike Kohut boldly stepped out of his comfort zone to head a Calgary startup company in the railway industry.

It proved to be a giant step that put Kohut’s entrepreneurial career on the fast track to success.

Since identifying a niche market in designing and manufacturing railway gear equipment with his two partners, Kohut has spearheaded a phenomenal growth story with Global Railway Industries through an acquisition strategy that has drawn rave reviews from analysts. A fledgling company born with a 20-cent initial public offering in 1998 has mushroomed into a business boasting a market cap of $72 million.

In the past three years, shares in Global Railway Industries have steamrolled to $5.35 from the $1 range. Although the train may have left the station, the youthful Kohut, the company’s president and CEO, says Global Railway is just picking up steam.

Larry MacDougal, Business Edge
Global Railway Industries president and CEO Mike Kohut’s acquisition strategy has helped turn the firm into a powerhouse in less than eight years.

1. What were your boyhood passions?

“My main interest was in sports, playing a lot of soccer, hockey and golf, but I was also curious about making money. I’ve basically had a job since I was eight years old, when I had a paper route. I made about $20 to $30 a month delivering papers. Then, from the age of 12, I worked at golf courses. I would golf in the morning and work in the afternoon or vice-versa. I look back on that now and say, ‘Man, I wish I could do that now.’”

2. Who were your mentors or role models?

“My mom (Barb) and my dad (Frank) were my mentors. My mom was a nursing assistant and my dad worked in the bread industry almost all his life. They were both what I would call workaholics – extremely hard-working individuals. Basically, they taught me the value of hard work. They also showed me there has to be a balance between work and play. My dad died of his third heart attack at the age of 53. I believe working hard is definitely a virtue, but if you take it too far, it definitely can be a liability.”

3. Have you been able to strike a balance between work and play?

“Being the president of the company, you get a little bit of flexibility. I travel an awful lot, so when I’m home I like to do things like take my kids (three daughters) to school in the morning. Today, I took my kids out for lunch. Family life is a big, big, big priority in my life.”

4. How did you initially get involved with the startup of Global Railway Industries?

“The other two founders of the company, Tim Sanderson and Barry Pingel, approached me with the idea of Global Railway and asked me if I’d lend my financial knowledge. I got involved while I was at KPMG (a Calgary chartered accounting firm that employed him as a tax manager). Then, I had to choose between KPMG and the railway industry. I went with the railway industry.”

5. What attracted you?

“I just saw an entire industry that was really reorganizing itself and, as I like to say, re-creating itself. People thought of the railway as an old, stuffy industry that was kind of going by the wayside, but I saw the exact opposite. Tim and Barry showed me it was reinventing itself to compete with the trucking industry and to be more efficient and cost effective. Within that wave of reorganization, there was an opportunity on the supply side.”

6. Was that a difficult decision?

“Before you make the jump, it’s a big, big jump. But then after you make the jump, you look back and say, ‘It wasn’t that big for me.’ But it was a big decision because prior to leaving (KPMG), I’d invested eight or nine years into accounting, specializing in taxes. I had a comfortable lifestyle, a good job and a good career path at KPMG. To give that up to go into the railway industry wasn’t easy. But literally within a couple of months of doing it, I was very comfortable.”

7. What was your initial investment into Global Railway?

“Initially, I invested $20,000 and then another $50,000. Then, I worked for a year without pay. We went public as a junior capital pool company, all of the initial investors got shares at 20 cents on the IPO (initial public offering) and we started trading at about 75 cents.”

8. To what do you attribute the phenomenal share appreciation?

“We think of ourselves as an eight-year overnight success story. The performance of the stock is a function of everything we’ve done over the last six or seven years. We’ve built up enough value so that people are starting to see it and understand it. We focused heavily on profitability. A lot of people like to say they’re growth companies and focus on growing their revenues, but at the end of the day we are very heavily focused on net income. We’re very efficient on the manufacturing side, we pay attention so that our cost structures don’t get out of control and we also like to realize synergies within our company. We’re constantly re-creating how we’re doing things and hopefully we do things better down the road. We’re never really standing still. As long as we maintain that mentality and flexibility, all that ends up as profit on the bottom line. Profit is a byproduct of all those other processes of being an efficient manufacturer, making sure that our cost structure is lean and making sure that our employees are productive and well paid. The company has been profitable since Day 1.”

9. What set the wheels in motion for that success?

“It was our first acquisition, Rafna Industries (in 1997). When we bought it, it was generating roughly $400,000 of after-tax income and doing about $400 million of revenue. After we bought Rafna, we were always profitable. That really set the bar. We thought we could grow Rafna into something substantially better, and in fact we did. Then, we started looking at other ‘Rafnas.’”

10. Where’s the biggest opportunity for growth in this industry?

“With our business model, we like to focus on under-served product markets. There are a lot of markets right now where there is customer demand that is not being adequately addressed. That’s where we get a lot of our organic growth. When you look at the railway industry overall, it’s flat to increasing slightly. So people wonder how we can grow these companies (acquisitions) 10 to 15 per cent per year. It’s because we’re really focusing on under-served product markets. Our goal in life is to make our customers’ jobs easier so they don’t have to worry about maintaining equipment.”

11. Are you planning on becoming a truly global company, as the name suggests?

“I think longer term, the answer is yes. We absolutely have to because this is a global economy and, as every year goes by, I think people are realizing that there are no boundaries in the economy any more. But right now, short to medium term, we see a lot of low-lying fruit in North America so that’s where we’re focusing right now.”

12. Will you continue with your strategy of building the company through acquisitions?

“I think so. We’ve made five acquisitions and now we have five operating subsidiaries. There’s never been a shortage of potential acquisitions. It comes down to those acquisitions fitting our criteria. We like to focus on acquisitions of companies that are in product markets that are under-served with few competitors, so we can get a dominant position in the market.

“Last, but not least, we have to buy the company right. That really means you’re not just overpaying for a company just to get into the market. If you don’t buy the company right, you’re just putting yourself behind the eight-ball right out of the gate.”

13. You’ve done all the acquisitions yourself. What is that aspect of your job like?

“I wouldn’t say I enjoy doing the deals, but it’s very satisfying once the deal is done. Doing the deal itself is a pretty tough process and a pretty stressful process. The part that I like the best is the integration of the company after the purchase. That’s where you realize synergies between companies and there’s a lot of value creation in that process. The last company we bought, YSD (a U.S. company), was purchased out of bankruptcy. We’re restructuring that company now and that’s where you start to see pure value being added, when you can buy a company that is not making any money and you can steer it toward profitability. That’s not my role. There are guys that we hire to do that, but it’s very satisfying being able to oversee that.”

14. What do you need to learn to become a better business leader?

“When we started eight years ago, the objective was to buy companies and create a base of operations. Now the objective is to build a team to keep that going. So what I’m learning every day is team building, and putting people and processes together to keep this whole business model moving forward.”

15. What’s your outlook for the railway industry?

“I’m very bullish on the railway industry. The reason for that is that our traditional competitor is the trucking industry, and it has certain issues right now such as high insurance costs, shortage of drivers, high fuel costs and congestion on the highways. At the same time, the railways are becoming more and more efficient. You see that with CN (Canadian National Railway) and CP (Canadian Pacific Railway) here in Canada. CN is the most efficient railway in North America and CP’s operations are becoming more and more efficient. I think that in the long run, the railway industry is going to take market share away from the trucking industry.”

16. With your business growing so rapidly, do you still have time for the odd golf game?

“I do. My oldest daughter, who is seven, fell in love with the game two years ago so now I have a built-in excuse to go golfing with her. That makes me happy because it takes me back to my days as a young kid at the golf course. So I hope my daughter carries through with that for her own benefit and it also allows us to spend time together.”

17. Do you have time for other hobbies and interests?

“(Sighing) Between work and family, it’s a full load for me right now. The sad thing is that between those things – and it’s not bad because my family is a great main interest – there isn’t a lot of time left over. A lot of the stuff I used to do has fallen by the wayside over the last two or three years.”

18. How long do you wish to remain CEO of Global Railway?

“As long as I can. I’m still having fun. Even though we’ve been here eight years and we’ve grown quite rapidly, I think we’re just really at the proverbial tip of the iceberg.

“I think that if we take Global to where I think we can take it in 10 or 15 years, we can look back and I can be proud about it. I’d like to put a team in place so that if I decide to leave in 10 years there’s a team that can take over without missing a beat. That, to me, would spell success.”

19. If you had to trade places with one CEO for one day, who would it be?

“I’d have to say Warren Buffett (the famous investor who is chairman of Berkshire Hathaway). I guess I wouldn’t mind seeing how his empire is run because he built it from nothing into something incredible. My investment style is basically long term.

You can’t build value overnight. There’s just no question in my mind about that. The only way to really make money or become successful is to invest over the long term.”

20. How do you define success?

“Success starts with the family. I don’t think you can be successful in business if you have all kinds of problems at home. It definitely starts there. And then in business, success really means providing an opportunity for not only you, but all of your employees to grow. I’d like to think that all the people who are at Global right now, or the majority of them, are going to be with us 10 years from now and they’ll be way better off from a job perspective both financially and personally than they are today.”

Mike Kohut

* Title: President/CEO, Global Railway Industries.

* Born/raised/age: Red Deer/Calgary/38.

* Education: University of Calgary, bachelor of commerce (accounting major); chartered accountant designation (1992).

* Family: Wife Marla, three children.

* Career: Kohut co-founded Global Railway Industries and has been the president and CEO since 1997. Prior to that, he worked as a chartered accountant. He was senior tax manager at KPMG in Calgary from 1994 to 1997.

* Favourite Entrepreneur: Warren Buffett.

* Favourite Pastime: Golf.

Global Railway Industries

* Brass: Mike Kohut, president/CEO; Dale Owen, chief financial officer.

* Profile: Global Railway, founded in 1997, is a railway products company and consolidator of railway equipment manufacturers, targeting markets in the rail freight and transit industries.

* Subsidiaries: Global Railway operates five subsidiaries – Bach-Simpson Corp., G&B Specialties, Prime Railway Services, Rafna Industries and YSD Industries.

* Key Stats: Global posted second-quarter earnings of $1,132,000 (through June 30) or eight cents per share.

* Recent Stock Price (GBI-TSX): $5.35 (52-week range, $2.60-$5.82).

* Website/E-mail: www.globalrailway.com info@globalrailway.com

* Head Office: 12, 611 10 Ave. S.W., Calgary, Alta., T2R OB2.

* Phone/Fax: 403-262-6501/ 262-6563.

(Gyle Konotopetz can be reached at gyle@businessedge.ca)