By Brent Banda
“At Hitachi, there was no meaningful equity. You were just an employee. The Japanese have a term for this: you’re a salaryman. You have a nice stable life. A perfect life. But there’s no upside. Or no downside, by the way. There’s no risk and no reward.”
Joe Vidal was reflecting on his time in management at Hitachi Canadian Industries, a manufacturing plant that produced turbines for power plants. This corporate environment was an unusual step
on an entrepreneur’s career path. For Vidal, it proved to be a valuable training ground for his time as a shareholder and CEO of Bioriginal Food and Science, one of Saskatoon’s largest private companies.
A farm kid from Loon Lake
When Vidal’s oldest brother was five years old, he was occasionally beaten up at the country school he attended because he spoke only German. The year was 1946. World War Two had just
ended and Vidal’s parents were recent German immigrants farming in northern Saskatchewan near Loon Lake. Vidal’s parents were strong people and taught their children to be tolerant of others. The family was eventually embraced by society and became part of the fabric of the local community.
Vidal’s family home was a welcoming place. He had 8 brothers and sisters, and over 20 foster children also lived with the family over the years, some for a few months and others for 15 years. Most were Aboriginal. To Vidal’s parents, helping others was a normal part of life.
Right after high school, Vidal began working at Syncrude in Fort McMurray. He worked from 8 am to 5 pm filling vending machines on site. Vidal reflects on why he was hired for this job. “I’d have to collect $5,000 to $10,000 in coins each day. My brother was an RCMP officer and they wanted someone they could trust with this cash. I literally had bags and bags of money.” He also worked a second job from 11 pm to 7 am at McDonald’s. After eight months, he moved back to Saskatchewan and drove a truck.
In 1981, one year out of high school, Vidal entered the College of Education at the University of Saskatchewan. He paid for university with savings from Fort McMurray and by grading papers for
professors. Finances were tight, and he lived with three other students in a twobedroom apartment. Vidal transferred to the College of Commerce and graduated three years later with a major in
Despite the bad economy in 1984, Vidal landed an articling position in Saskatoon with a respected accounting firm, Peat Marwick, which would later become KPMG.
The Saskatoon office was a great learning environment for Vidal. “In Saskatoon, we had a lot of mid-sized clients. You got to see the whole business cycle. When they bought something, how they manufactured it, and where they sold it. I got to talk to the guys and gals who actually made stuff happen. I was interested. What mistakes did they make? What worked and what did not? In the back of your mind you start to see patterns.”
Vidal set up accounting software for one of the firm’s clients, Hitachi Canadian Industries, and built a rapport with the CFO, Mr. Okada. “He was going to buy his wife a car. He mentioned that then he bought his first car in Canada he just paid the list price because that’s how cars are sold in Japan. I told him, ‘In Canada, that’s not how it works. There’s some back and forth.’” Vidal went to the dealership with Mr. Okada and worked out a deal for a car that was set to arrive in one week. But over lunch two days later, Mr. Okada mentioned it had already been delivered with 5,000 km on the odometer – and the back seat covered in dog hair. I said, ‘No, that’s not how it works in Canada.’ They had sold him the demo. I was pretty offended. Really? You’re taking advantage of a foreigner because you can?” They returned the car to the dealership and he got the new car he expected.
Hitachi training ground
Mr. Okada was going back to Japan in 1991 and offered Vidal his job as CFO for Hitachi Canadian Industries in Saskatoon. Vidal, then working at KPMG’s national office in Toronto, was still under 30 years old. He saw it as a learning opportunity and moved back to Saskatoon to take the job.
Hitachi Canadian Industries was a small business in Saskatoon with 35 people and US$6 million in revenue. It was part of a US$20 billion power division that made nuclear, gas, and thermal power plants. The parent company’s global revenues were US$80 billion.
When Vidal started as CFO, he found a struggling business. It was losing money and Hitachi was considering shutting down the operation. Differences in culture were at the heart of the problem. “Canadian managers thought they could take advantage of this big company. For example, the Japanese had been told that you don’t run shiftwork in Canada. I told them, ‘No, tell that to a police officer or a doctor or a taxi driver. Manufacturing companies are no different.’ Other local machine shops were running shiftwork, of course. When you have to pay for tens of millions of dollars in equipment, running for 24 hours rather than 8 hours every day makes sense.” Vidal made sure things were fair and Japanese policies and decisions were applied properly in the context of Canadian culture.
Vidal’s business skills matured as he learned the Japanese way of doing business. As an example, twice each year Vidal had to revise the company’s budget and support how he got the numbers. Explanations were required for any variance from the prior budget. “If our average wage cost went up for welding by 50 cents per hour, you had to attribute it to factors like increased cost of benefits and electricity rates or changes to CPP. In the Japanese world, everything is bottom up. You understand the granularity and then you summarize it, as opposed to ‘here’s the number, you go figure out how to reach it.’ What I found so tremendously interesting was that the prep work was more important than the outcome. You dug in and said, ‘Oh my goodness, I did not realize that.’”
The Japanese train employees through practical experience. Vidal started as CFO, was given responsibilities as HR manager, and then became production manager, for which he had to try to read engineering drawings and manage engineers, welders, and machinists. Eventually, Vidal became general manager.
Eight years after Vidal started, the business had US$30 million in revenue and about 250 employees. Of the 800 companies in the power division, it was one of the most profitable as a percentage of revenue. Vidal reflects on how he felt at the time. “The market was right for us and we had a really good team and it all worked. I loved that job, and the Japanese were spectacular. I was still not 40 years old, but the job became relatively routine. I was bored.”
Transitioning to Bioriginal
Vidal and Rick Kulow, president of Bioriginal Food and Science, knew each other through a local business club in Saskatoon. Kulow often asked Vidal questions about how he’d handle certain
situations in business. One day Kulow mentioned that his CFO was retiring, and asked Vidal to take the position. Vidal declined. He had a great position at Hitachi. But Kulow persisted and set the fire under Vidal’s entrepreneurial career. Kulow sold Vidal on the idea of having equity in a growing company.
Bioriginal was in the process of closing a large equity round with a venture capital firm. As Vidal recalls, “Kulow said ‘talk is cheap; put some money in.’ So I did. It was only $60,000 but for my wife and me at that time it was a significant amount of money.” Vidal laughs as he tells the story. “I should have performed my due diligence. Bioriginal was not making money. I bought into an unprofitable company.”
Bioriginal Food and Science is a contract manufacturer. It does not sell to consumers. It sells to companies that have their own consumer brands, including some of the largest manufacturers and retailers in the world. It produces ingredients such as processed flax seed for products such as energy bars and baked goods. It also produces nutritional supplements, such as omega-3 fish oil capsules. Bioriginal’s product portfolio is diverse, using ingredients from a wide variety of plant and marine sources. The company is involved in many areas of the product life cycle, including plant breeding, product concept development, raw material processing, and packaging. It’s a complex business with global operations.
Vidal started as CFO but also became VP of operations within six weeks. At that time the business faced a significant technical problem with a key product that resulted in a C$1 million expense and threatened the viability of the business. Vidal was able to address the problem by applying knowledge of production planning he learned at Hitachi. Vidal was VP of finance and operations for many years and eventually became chief operating officer, and then president in 2004. Kulow had retired. Vidal earned share options as part of his employment arrangement but had not purchased additional shares.
Currency risk and employee theft
Bioriginal’s annual revenue was US$20 million when Vidal started in 1999. By 2006, company revenues had grown to $58 million. But Vidal and his management team faced some difficult situations along the way.
A friend had recently provided Vidal with valuable advice, encouraging him to be clear on what he wanted to do with the rest of his career. Vidal realized he wanted to buy the company and began discussions with shareholders about some of the management team acquiring shares.
In 2006, financing was in place for a management buyout, but the private equity firm involved was concerned about currency risk and backed out at the eleventh hour. What the firm was concerned about actually happened: the Canadian currency strengthened relative to the US dollar. “Scrapping the deal was probably the best thing that ever happened. Something that cost us a dollar now cost $1.30. We had to cut our staff and we had some tough choices to make. If we had bought the company, we’d have levered up the business and I don’t think we could have made our debt payments.”
Vidal is a demanding person. He respects hard work, insight, and ability. Hearing Vidal speak about his staff, he clearly respects and trusts the management teams he’s worked with over the years. But leaders can be blindsided.
In December 2009, Vidal was in a dressing room before playing hockey. He opened an email from a Bioriginal employee. It contained a forwarded email with a business plan attached. Joe was
being warned that a few staff were going to start a competing company and approach Bioriginal’s customers and suppliers.
The original email was sent from a company VP. Vidal confronted him a few days later. “He was an unbelievably good liar. I showed him the document and he said, ‘I know nothing about that.’”
An investigation revealed something much worse. Vidal went through the employee’s laptop and there was an invoice in the trashcan issued to one of Bioriginal’s suppliers for a kickback. Additional invoices were found on the laptop along with a spreadsheet recording a history of kickbacks totaling over US$700,000 and listing where kickbacks totaling $1 million would come from in the next year. The VP of sales had arranged for Bioriginal to overpay on certain ingredients. He had drawn Bioriginal’s CFO and purchasing agent into the scheme so these transactions had not been reported.
It took Bioriginal a few years to recover from the theft. Vidal comments on how it affected relationships. “Everybody looked at everyone else differently. There are still people today that will raise the possibility when they see an anomaly. The thing is you work with these people every day. I knew them well. The CFO was my roommate from when I worked at Peat Marwick.”
Vidal had contracted a business broker from Boston to try to find a financing partner to investigate a company sale. Immediately after letting the dishonest employees go, Vidal phoned the broker to cancel the engagement, realizing that a recent history of employee theft would make financing the deal very difficult. As 2009 closed, revenues were north of C$50 million, but timing was just not right for Vidal and other managers to increase their stake in Bioriginal.
Vidal is comfortable as an employee working for a private entrepreneur. “It’s less stress, no question.“
Management buyout … and a legal battle
Vidal is a deal-maker at heart and is always looking for new opportunities. He had a friend in Saskatchewan who was involved with a local private equity firm, and one of the investments was in
the oil and gas industry. Bioriginal is a human nutrition company, but one of its by-products had potential application in the fracking process to help improve the performance of oil wells. Vidal set up a meeting with this potential customer.
That conversation led to a discussion about the investment fund. Eventually, the private equity firm participated in the management buyout. Vidal and other managers now owned 44% of Bioriginal, and the local private equity fund owned 56%. The year was 2012, and the business had grown to about C$70 million in revenue since the experience with employee theft.
After the sale, Vidal had a bit of a surprise. When the transaction closed in early 2013, the Boston broker took Bioriginal to court claiming that he had still been engaged in a four-year-old
contract and demanded a success fee. “I went back and read the contract. It said termination of the agreement had to occur in writing but I had done it over the phone. We were preparing to defend ourselves in court when the broker’s lawyer successfully moved the case from Saskatchewan to Massachusetts.” Legal advice from a Boston law firm was that without home court advantage they were likely to lose the case. Bioriginal settled, with total costs including legal fees reaching US$600,000.
Bioriginal had verified the business broker’s credentials prior to signing the original contract. This person was well regarded and had a track record of success. Vidal is open about the experience and what he learned. “What I took away is that you better understand all the contracts you sign. And second, there are people out there who will use legalese to manipulate a deal in their favour rather than following what they agreed to. That’s not most people in the world. But these people exist.”
Timing, skill, and innovation
Emboldened by the management buyout, Vidal and his team were ready to grow the business. They finalized the deal and set the price in September 2012. Then in November, they were at a trade show and landed a contract to take on some product for Costco.
This Costco order was for coconut oil. Bioriginal already had an established supply chain for coconut oil. “We didn’t know Costco at the time, so we were happy with the initial order. Costco said, ‘We’ll take a couple of truckloads of product’ and a truckload is about a quarter million bucks. So we thought we might get an extra million dollars of business and we’re happy, but were still carrying on as normal. Revenues took off. Within a year, we were doing an additional C$15 million of business in coconut oil.”
Bioriginal had looked at coconut oil and had confidence in the future of the product based on scientific evidence of health benefits. It invested heavily in marketing. To strengthen its supply chain, Vidal spent a lot of time in Asia finding suppliers, visiting coconut farms, and understanding where to source quality product. Bioriginal was placing a big bet on coconut oil.
Bioriginal went from a few customers and C$15 million in sales in 2012 to many customers and over $40 million in 2014. Sales increased because the company had the right customer contacts and was able to supply product as the coconut oil market took off.
Bioriginal worked hard to meet the demand. “I remember when we got the Costco business, we didn’t have enough packaging line capacity to handle the extra volume. Business seemed to be picking up so we took a chance and quickly invested a half a million dollars upgrading our packaging line capacity. One or two truckloads here or there was fine, but when the orders kept coming we had problems keeping up. We scrambled to make another investment in our packaging line. We fulfilled all the orders but it was touch and go for a while.”
Consumers in the US and Canada were not familiar with using cooking oil that is a solid at room temperature. Coconut oil liquefies at 24°C. Vidal and his team saw an opportunity for innovation.
“I remember in 2013 sitting down in Manila at a hotel with one of the coconut guys from Asia, one of our engineers from Bioriginal, and one of our strategic customers. I began sketching notes on a piece of paper with the chemistry behind our concept. It was just a fractionation process where we removed some of the long-chain fatty acids. The Asian guys were confused. In the Philippines, it’s always warm enough for coconut oil to be liquid on the grocery store shelf. Our conversation was the genesis of liquid coconut oil as a product, now widely adopted around the world.”
Bioriginal partnered with this Philippine company and the customer to bring the product to market. “I remember our first sale was to Walmart. We were scrambling. At first we didn’t get the chemistry right and it solidified a little bit, but the customers wanted it. We literally were adjusting our product and ramping up sales at the same time.”
The company sells multiple coconut products and sales are still growing. In 2017 Bioriginal was the largest supplier of virgin coconut oil in North America.
The fish farmer
In 2014, Vidal and his management team had grown annual revenues to US$100 million, up from $70 million when they bought the company two years earlier. A friend from Colorado asked Vidal for a favour. Would he meet with the CEO of a public company called Omega Protein about an acquisition? Vidal met the CEO, had a good conversation, and spoke at a high level about revenue and earnings, and although the initial price discussed was fair, Bioriginal declined. Over time, the CEO kept raising the price. At the end the price was high enough for all existing shareholders to sell.
Vidal, no longer a shareholder, continued to run the business with the same management team in place. Vidal says it was a great organization to be associated with.
Activist shareholders questioned Omega Protein’s three-year-old acquisition strategy. Under pressure, the public company began investigating the sale of assets, including Bioriginal and other subsidiaries. Vidal found himself presenting to 20 people in an investment banking firm’s Manhattan office. Most of the people in the room were lawyers or had a finance background, with one notable exception. An integrated aquaculture firm’s founder, Glenn Cooke, happened to be a potential buyer. The aquaculture firm was interested in acquiring Omega Protein and Bioriginal was part of the package. The deal closed shortly after.
Bioriginal’s current owner is Cooke Aquaculture. It’s a family business from New Brunswick with revenues measured in the billions.
To Vidal, being owned by a non-public entity is like a breath of fresh air. “Bioriginal has a European business, US business, and Canadian business and all use different accounting systems. I was walking from a restaurant one evening talking to Glenn about the need for one ERP system – an enterprise resource planning system. I said we had this plan and the cost was about US$500,000. I flew home. I arrived at 6 am, and there’s an email that says, ‘Just go do it.’ I called him and said do what? Make the proposal?’ He said, ‘No, just go get the software.’ Entrepreneurs tend to do that. They take a chance and make a quick decision for the sake of the business rather than trying to manage next quarter’s results.”
The next step
“My wife deserves credit for any success I’ve had in my career,” Vidal explains. “She has a business degree as well, and she understands decisions and sacrifices that have to be made. She was very encouraging during these different changes in my career.” Vidal’s excitement increases as he begins talking about his family and their wonderful memories from holidays at Emma Lake in Saskatchewan. His parents’ family values have stuck with Vidal throughout his life.
Vidal sits in his office and reflects on what he’s experienced in his career, including the people he’s met and the places he’s visited. His comfort with the broader world has served Vidal well on the global stage. He has travelled throughout Europe, the Americas, and extensively in southeast Asia to places like India, the Philippines, Taiwan, Japan, Korea, China, and Sri Lanka. He has worked with many different people, but he’s clear that no matter where you go some people are genuinely good to work with while others are not. Just like in Canada.
Vidal is comfortable as an employee working for a private entrepreneur. “It’s less stress, no question. When I was running the business and it was my money at risk, I was overly stressed about the employee base. When we have difficult times, I’m fine. But you worry about your employees and suppliers. It’s not just about making money. You impact their lives. Now that we’re part of a large organization, that stress of making sure you do right by your employees is gone and it actually gives you the freedom of doing what is right for the business. Now, it’s not like I’m reckless with an investment I’m considering for the company. It’s that I need to look Glenn in the eye and say, ‘it’s a good use of your money.’”
First published in the December 2018 edition of The Business Advisor.