You Can Always Trust the CSA

“I’m worried about this, they want to see everything.”  In 2004, the CSA organization had approached Peter Knight about purchasing P.S. Knight Co.  He knew that CSA was unhappy about Electrical Code Simplified (“ECS”), that the existence of the original Commercial & Industrial book was harming the sales of their version of it.  They were clear in their statements to P.S. Knight Co. that they were purchasing the company in order to enter the residential book market that ECS had long dominated.  As an added benefit to them, a purchase would also eliminate the drag on CSA’s Handbook sales.

Once the due diligence process began there was some alarm at how much detail CSA was asking for.  It seemed that they were asking for a lot more information than was required to assess the company.  After all, P.S. Knight Co. was a going concern, was clearly viable, and after thirty-five years in publication the ECS brand had the authority that CSA’s youthful Handbook so conspicuously lacked.  Yet the data demands continued.  Their explanations for needing the data seemed plausible, and without cause to question their integrity, they were furnished with what they asked for.  The CSA organization had access to everything at P.S. Knight Co., save for distribution and contract particulars. 

Several weeks of discussion and review culminated in a meeting in Calgary with two CSA representatives; Duncan Cowie, the then newly installed VP of Finance, and Josee Gautier, Manager of Product Development.  It was an odd meeting.  Apparently the Delta Bow Valley Hotel, usually a pretty good place for business, didn’t have any meeting rooms available.  Instead, we were given access to a partially converted guest room.  Cowie sat in a wooden chair in front of a wood-paneled murphy bed cover, his CSA colleague Josee was in another wooden chair to his left, beside the bedroom window.  Apart from three chairs and one night table there wasn’t another piece of furniture in the room.  In these Spartan surroundings we made some small talk before Cowie began his summation.  Yes, CSA would like to purchase P.S. Knight Co. and yes, CSA would like to get rid of ECS’ Commercial & Industrial book.  But their real interest in acquisition was the ECS residential book series.  Cowie indicated that CSA intended to enter the residential book market but had concerns about it.  How would they handle distribution, for instance.  Then there was the problem of brand recognition.  While electricians know what CSA is, most people buying an electrical wiring guide at their local hardware store don’t know about CSA’s electrical activities.  They’re buying an electrical instruction guide because they don’t have much background in electrical.  If CSA didn’t acquire P.S. Knight Co., a new CSA residential guide would be a high-risk launch; by purchasing P.S. Knight Co. however, they’d solve both their market entrance and their distribution problems.

Then Cowie came to the crux of the matter, the price.  He advised that CSA had no intention of paying anything over the market value for the company.  Alright, but there are several means of valuing assets to market, so how was he calculating this?  We never learned the answer to that question, but whatever his means may have been, his valuation of ECS was actually quite silly.  The CSA offer didn’t even cover the value of our inventory.  Actually, the offer covered barely 20% of the value of the ECS books in the warehouse at the time.  He accounted no value to equipment, or to data files, or renderings, or distribution contracts, or to brand value, and he accounted nothing at all for the goodwill of the company.  But with three and a half decades of continuous profitability, even a cursory glance would show value for goodwill.

Peter Knight wasn’t pleased.  This wasn’t merely a poor offer, and it was way too far off the valuation mark to be accidental.  Duncan Cowie was CSA’s head of finance, he was a former Chief Financial Officer, a Certified Accountant, and he’d earned his B.Com from Queens University, he’s no slouch with numbers.  This offer was actually insulting.  The conclusion from P.S. Knight Co. and from its legal counsel was that the offer wasn’t intended to be taken seriously, it was an offer designed to be rejected.  The CSA organization didn’t really want to pay anything to acquire P.S. Knight Co., they just wanted a good, long look inside the company.  They wanted our data.

In the days that followed, CSA was advised that the offer was unacceptably low, but having seen P.S. Knight Co. financials they already knew that.  There was no follow-up offer from CSA and no effort to resurrect the discussions between the parties.  Within a few weeks it was clear that CSA felt they had done what they needed to do to make it appear that they were serious and they now felt no more need to speak with P.S. Knight Co.  For his part, Peter Knight felt mightily abused, his trust had been badly violated, and competitive intelligence on his business had been absconded. 

Throughout 2004 there had been a growing worry, in the background it seemed, about CSA’s expanding commercial operations.  Why was a regulatory entity engaged in commercial activity?  Was that even legal?  And if CSA had purchased ECS, wouldn’t that have given them a monopoly in the Canadian market?  There aren’t any other books on Canadian electrical rules, and without ECS the CSA books would be the only game in town, in every town.  These initial worries were as a few dark clouds on the horizon, but the weather changed quickly and dramatically in the following year.