In mid-May, Hearth & Home spoke with key executives of NIBE Group/NIBE Stoves, and Regency Fireplace Products, to learn more about NIBE’s acquisition of Regency and the Swedish company’s future in North America. Interviewed were Niklas Gunnarsson, director of NIBE Stoves; Robert Little, founder and CEO of Regency; and Glen Spinelli, president of Regency.

Hearth & Home: Given the many European hearth product manufacturers that have tried and failed to break into the North American market, and since NIBE is successful in the rest of the world, why is NIBE interested in North America?

Niklas Gunnarsson: “It’s easy to answer that question: it’s a great opportunity for us. Our other two divisions, NIBE Climate Solutions and NIBE Elements have acquired a lot of companies in North America over the years, so we already have a strong background here. It has been a target for our group to have NIBE Stoves in the North American market. We really look forward to all the opportunities we have here.”

In what other countries is NIBE currently doing business, particularly in hearth products?

Gunnarsson: “The Nordic market including Sweden, Norway, Denmark and Finland, and in the rest of Europe. The main markets are Germany, France and the UK. Then we are selling to smaller markets like Holland, Belgium and Ireland. Now, with Regency on board, it will be the United States, Canada and Australia. So you can say three different areas – the Nordic market, the main markets in Europe, and now North America, of course, with Regency’s strengths here.”

The flags are flying at the FPI/Regency factory and headquarters in Delta, British Columbia.

What were the revenues of the NIBE Group in 2016, and how much of that was in hearth or the NIBE Stove division?

Gunnarsson: “Last year it was US $1.6 billion for the entire NIBE Group. Our target for 2020 is 20 billion SEK (Swedish Kronor), around US $2.1 billion, and we are getting close to that target now in 2017. We’re ahead of the plan.

“NIBE Stoves is around US $250 million out of the $1.6 billion group total. But our target is to take it up to US $425 million within four to seven years. That’s the plan, to hit 40 billion SEK, or US $4.2 billion, which is the new target for the NIBE Group.”

That’s quite aggressive. How many employees does NIBE have?

Gunnarsson: “Around 12,000 last year, but with all the acquisitions we have made last year, we added another couple of thousand people. That is for the whole group, and then if you take it down to the stoves, we have 1,300 people working with stoves and fireplaces.”

We know that NIBE started researching the North American market a few years ago. What led you to Regency?

Gunnarsson: “We’re always looking for companies that have a good brand name. They should have a well-developed distribution network, and we prefer that they sell to retailers. They also should have a product program matching their market demands.

“We have to have people with passion, and we need to have people who are happy with their work, with their efforts, and want to stay on board after the acquisition. That’s very important. A track record including a strong record of profitability is another criteria.

“The dealer network is important for us, and we know the process of selling to retailers. We are familiar with that. Yes, it should be a top company in North America. That’s what we are looking for and Regency answered all of that.”

Glen Spinelli: “If you are an employee and the company is acquired, that sometimes can be a scary thing. Our employees realize that NIBE is in the stove business; they understand the seasonality of the business, and they understand the products. They know how we approach the dealer network, how we support our dealers.

“Our customer service is one of the best in the industry, and we will continue to improve it as NIBE Group and Regency learn from each other. Though the businesses have developed simultaneously in separate markets, there are so many things that are common between our organizations, and sharing will be mutually beneficial.”

Robert (Little), you have been known as being uninterested in selling your company, so what prompted the change?

Little: “I was not looking to sell. NIBE approached us about two-and-a-half years ago. I know the guys at Stovax, which is a company that NIBE purchased four years ago. So the manager at Stovax phoned me and explained to me what was going on with their company and asked if I was interested in meeting with NIBE. He gave me a description of NIBE’s business practices, and gave me an understanding of how much independence they give their companies to operate. So I said okay, I’m kind of interested in that especially since they are in the hearth business.

“So over a period of about a year-and-a-half we got to know them, got to know their culture, and I just felt it was the right thing for our company. The one thing I was always very clear on is I would never sell the company to a private equity firm. I felt a responsibility to the employees of the company, after my 38 years of work, and I wanted eventually to find a partner for the company that would sustain the business.

NIBE Group/NIBE Stoves facility in Markaryd, Sweden.

“NIBE understands our business, and their business philosophy is to allow a lot of autonomy to their individual divisions; they are in for the long term. They are not a private equity company. They are not in it to just turn a quick buck.

“We’ve all seen a whole range of perfectly great companies with great employees being decimated by bankers or private equity groups that really had no interest in being in the industry, and really no interest in the people that work for the company. To them it’s just a financial opportunity to make a few quick dollars at the expense of a lot of hard-working people. I just felt this was the right thing for the company.

“The other thing is that, although they were interested in purchasing the complete operation, I didn’t want to sell the whole company at this time. I still want to work for the next five, six or seven years. I’ve still got a passion for it, and I’m interested in doing it. NIBE purchased 65% of the company, and I and some of the senior managers of the company still retain 35% of the business. In 2022 the final 35% of the business will be purchased by NIBE.

“It’s really about a controlled succession plan. NIBE is definitely the right partner. They are a great company, and the timing and the conditions were really ideal. I couldn’t have found a better exit out of the industry and a better outcome for the business that I’ve seen built by lots of our long-term employees. Generally speaking, the sale just evolved, and it was the right thing to do for the company and the right partnership to help the business.”

What will you be doing now?

Little: “Exactly the same thing as I’ve been doing for the last 38 years. The company is very mature and has very deep management with lots of seniority, so the day-to-day operation of the business remains solid. My job as the CEO of the business is to take a look at longer-term trends with design, technology and distribution. For the next two or three years, that will be my focus.”

Gunnarsson: “That is exactly how we, from NIBE’s side, would like to have it – for you to continue to work as you have done before is very much part of our philosophy.”

What are the differences that you see between the North American and European markets?

Gunnarsson: “First of all, there are many similarities, such as the way of handling dealers, the way of marketing and, in general, who we work with. Many, many of these things are the same, which is to build relationships. The difference is in the products.

“In North America you buy the product, at least in some regions, primarily to heat your house. In Europe, it is much more for decoration, and products are more like furniture. Of course, the products are different. I do not know any companies from North America who have succeeded in Europe. I have been 30 years in the industry and have never seen that. It is also difficult for European companies to succeed in North America. That is why we need an established, successful platform here in North America.”

Little: “Really, the industries are the same. It’s just the products that are different. The structure of the business in Europe follows a similar pattern that we do in North America. It’s just the products are very, very different, and one product does not necessarily cross over into the other markets. In North America, European styling, which I love, has really not been accepted. Over time it may evolve, but we’ve both seen lots of those types of products come and go and they never seem to gain strength.”

Gunnarsson: “Another difference is how many brands and companies we have in Europe. I think there are at least 250 brands. So there are lots of small, individual companies and there hasn’t been any real consolidation of the market. Over here there are more big players, each with a lot of brands. I think there will be some changes coming to the European market in five to six years. Now, with tougher market conditions coming, and new product requirements in our industry, there are a lot of private owners who would like to sell their company and, of course, NIBE could be a safe offer.”

In view of the regulatory challenges we are seeing here in North America, such as the NSPS, the DOE and Net Zero, does that give you any second thoughts in regards to the North American market?

Little: “We’re ready to go on the NSPS. We’ve got a number of products that already meet it, and our R&D people are working on our existing products to make them compliant. We’re probably going to wait until 2019 before we actually introduce those upgraded products. But we have managed to develop a technology that will meet them.

“Regarding the NSPS, every time there is a regulation it’s a pain in the butt and an opportunity. We are well positioned with technology to meet those standards. As far as the DOE, that is an ongoing process, but I think over time there will be more pressure on the industry to really take a look at efficiencies. That is just a part of the global warming issue, so we need to make sure the products are efficient. Then you’ve got the Net Zero in California, which I think is still evolving.”

Inside the Regency factory.

Will NIBE be sending any of its hearth products to North America, and will Regency be sending any of its products to Europe?

Little: “Part of our focus at this board meeting (mid-May 2017) is to narrow it down to the kind of products that NIBE has that we feel are compatible with our market and compatible with our testing standards. So you will be seeing a range of products coming in from NIBE and its various operations, but we have not yet defined exactly which products.”

We know that the NIBE Contura and Stovax brands in Europe are wood-burning units. Will Regency’s success in gas filter into the NIBE products?

Gunnarsson: “Robert mentioned Stovax. That’s one company that includes the Gazco brand. Half of the sales of that company are coming from gas products. They are absolutely the market leader in the UK. So we already have gas products within the group.”

Little: “Stovax and Gazco also offer electric models, so we’re quite interested in their electric products and are evaluating them for potential next year.”

What level of sales growth are you expecting from Regency?

Gunnarsson: “It’s hard to predict, but we have a general target with the NIBE Group to have an annual growth of 10%. The last few years we did not reach that goal due to market circumstances in Europe. For Regency, I think realistically it could be something like 6% to 8%, but the target is 10%.”

Little: “Eight to 10% over the next two to three years if we bring in some additional product. It’s there. There is opportunity.”

Are there any planned changes in Regency’s marketing direction in the near future in North America. Any that might impact Regency’s specialty dealer base?

Little: “We’ve got a pretty successful business model that responds to the marketplace, and changes in the marketplace, so we’re going to keep going pretty much the way we have been. Why mess with success?”

It was mentioned at the HPBExpo that Regency is trying to bring on at least 100 new dealers a year worldwide. How is that progressing?

Spinelli: “We’re always looking for the best and brightest new dealers that we can find. In some markets, we currently do not have representation. We know where we need them. Our line is so broad and it covers so many different categories that it allows us to approach new markets while supporting our existing dealer network.”

Regency has never really targeted new home construction. Is that a possibility in the future?

Spinelli: “Our products are sold in new construction, but only through our dealer network. We don’t chase the very low end of the new construction market, but we are well positioned for a decent amount of the business in the middle- to high-end of new construction homes. When homeowners get involved in making choices for themselves through our dealer network, we usually win. But it’s still a renovation market at the higher end.”

Gunnarsson: “It’s the same from NIBE’s side in Europe. We do not sell directly to home construction, so it is 100% through our retailers.”

What are your thoughts and concerns about what is happening in the North American hearth product market, and where is it headed?

Little: “I think the demand for hearth products is still very strong as the central focus of a room. I mentioned that Stovax is into electric and has been quite successful with a very unique electric product. We are looking at that as well in order to cover all the bases, and we’re hoping that we’ll be very diverse with product, very diverse with geography and always making sure that we are in the product range that we think is going to be in demand.”

NIBE’s published vision is to “create world-class solutions in sustainable energy.” Does that include NIBE getting into solar, wind or other solutions?

Gunnarsson: “I cannot say specifically about solar or wind. The meaning of that vision is that we are offering sustainable solutions to our customers. NIBE Climate Solutions, where we have geothermal heat pumps, for instance, can take 1kw of power and, together with a compressor, return 5kw of heat or cooling. That’s a very good way of using energy.

“Within our Element business, we are an OEM producer to a lot of different industries worldwide, and very often are involved in product development together with our customers. We can come up with new components or solutions that will reduce energy needs and be sustainable over a long time. That is very important for us. Then, of course, the stoves wood-burning stoves especially-also help us to create a sustainable energy solution.”

Growth through acquisition is said to be very important to the group. Are there any other types of acquisitions that you are looking at, particularly in hearth?

Gunnarsson: “Absolutely. We would like more companies in North America in order to grow our business, and if we look in Europe, for instance, I would like to have companies to complement our product programs, so we are not yet complete. We could widen our product range and cover more countries. We could be stronger in North America. So we are looking for more companies, but they must meet our criteria for all acquisitions.”

On the assembly line.

Talking about acquisitions, NIBE says it will “keep companies and management intact” and that “the company aims to retain not only brands, but also skilled employees at every level while creating a decentralized organization where new additions to the group continue to enjoy considerable autonomy.” That sounds too good to be true. Is that still your policy?

Little: “The amazing thing is to take a look at the NIBE corporate office. It’s a US $2.1 billion dollar business, yet there are only six people in the corporate office. NIBE is actually run by six people.

“Obviously, we have to meet certain goals and fulfill certain obligations within the business model. That was one of the attractions; the major part of my attraction to NIBE is (1) they are in the business and they understand the business, and (2) they don’t micromanage. It’s quite an incredible business model.”

Gunnarsson: “If we go back to why we are bound to Regency, it was actually the criteria of management that the owner with his passion for the company would stay on board for a long time. That has really fit in very well with the philosophy we have. Any NIBE company can call anyone else within the group. We have in the NIBE Group 100 companies and they can pick up the phone and ask questions and get guidance from any other group member. As Robert explained, that’s how we manage the company. We have nothing to hide so it’s totally transparent. That’s our model.”

I understand that 25% of the group’s sales are in North America. Does that include the Regency sales?

Gunnarsson: “I think the group’s sales are even more now with the companies we’ve recently bought in the United States and Canada. But one-quarter of NIBE Stove sales now are coming from North America.”

Last year Regency did not display at the HPBExpo because it was going through the acquisition. How does NIBE stand on trade shows and will we be seeing you at future HPBExpos?

Little: “We are going to the 2018 HPBExpo. We are fully supportive of the trade association. We do want to launch our company to the world, and we do plan on participating in future trade shows. I can’t say whether it is going to be every year or not, but we will be there in 2018 showing what Regency and NIBE will look like for the future. We do fund the trade association whether we have a booth or not.”

In some acquisitions, particularly by foreign companies, a lot of the retailers become upset because customer service and contacts are all handled overseas. I assume that is not the way this acquisition will be, and that Regency will continue to operate as it has been doing.

Spinelli: “Yes. We already have a deep supporting infrastructure for customer service and branch operations and, as Robert said, NIBE’s corporate head office has only six people. They don’t have this large room full of people waiting to answer the phone in different time zones.

“All of our people are more encouraged than ever and have been given more autonomy to help our dealer network and support them. It’s business as usual. We’ll actually be expanding some of the things we’ve been doing.”