Building a World Class
Finance Organization/Private
Equity as a Stakeholder
IMA Detroit Chapter
January 14, 2014
Mark Blaufuss
CFO, Metaldyne
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Overview
• Summary Background
• Building a World Class Finance Organization
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Benefits
Characteristics
How to Get There
Challenges
• Private Equity as a Stakeholder
• Overview
• Characteristics
• Key Success Drivers
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• Education
• BA – Michigan State University
• Professional Services/Consulting
• Pricewaterhousecoopers
• Alixpartners
Summary Background
Summary Background
• Small Acquisition/Roll-Up Manufacturers
• JPE, Inc.
• Stonebridge Industries, Inc.
• Larger Multi-National/Private Equity Backed
• Axletech International, Inc.
• United Components, Inc.
• Metaldyne
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• Understand the stakeholders of the business
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Ownership
Customers
Employees
Peers/Management Team
Summary Background
Summary Background – Approach
• Understand role in the organization
• Expectations of Stakeholders
• Establish key working relationships
• Service organization mentality
• Understand the parameters to work with
• Resources
• Relationships
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Benefits of a World Class
Finance Organization
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• Transforms finance into a valued business partner
• Allows management of the trade offs between business
partnering and corporate governance
• Sets targets for improving finance’s business value
• Implements innovative budgeting, forecasting and analysis
methods
• Reduces the costs of financial services and improves their
effectiveness
• Identifies the new skills and talents needed to maintain
excellence within the organization
Building a World Class Finance Organization
Benefits of a World Class Finance
Organization
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What Does a World Class
Finance Organization
Look Like?
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• Culture
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Highly communicative
Fact based management/data driven decisions
Promotion of insight/team participation
Blameless environment
Consistently evolving/transforming
Building a World Class Finance Organization
Characteristics of a World Class
Finance Organization
• People
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Establishing annual goals and measuring against them
Cross-training (incl. various departments w/in finance)
Job succession
Professional development
Incentive/Compensation strategies
Honesty
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• Business Partnering
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Recognized as bringing value to the organization
Fact based assessments
Balanced approach to corporate governance
Involvement in non-finance activities
• Cost Efficient Organization
Building a World Class Finance Organization
Characteristics of a World Class
Finance Organization (cont.)
• Understand cost of the organization
• Assess/challenge costs, seeking on-going cost reductions
• Benefits derived from personnel and system costs
• Engaged approach to outside service providers
• Benchmark against similar organizations
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• Processes/Systems
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Automation
System reliance
Risk based authorizations
Documented and defined
Data management/retention
Building a World Class Finance Organization
Characteristics of a World Class
Finance Organization
• Reporting
• Simple and Concise
• Timely
• 2-3 day close
• Bridges with minor “other”
• Consistency with operational management
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How Do You Get
There?
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Building a World Class Finance Organization
Adopt a Continuous Improvement Approach
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People
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Skills & Capabilities
Job Satisfaction
High Potential
Processes
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Basic Business Processes
Exceptions and Inefficiencies
Recurring Errors/Issues
Controls
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Identify Key Controls
Segregation of Duties
Delegation of Authority
Value
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Value of Deliverables
Timeliness of Reporting
Overall Cost of the Organization
Building a World Class Finance Organization
Assess The Finance Organization
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• If someone cannot explain it to you, they don’t understand it
• Ask who uses the report or information that is being produced
• What is it used for?
• What decisions are made on the report/information?
• Look for manual intervention
• “I download the report and then make these adjustments to it”
• Challenge how effective reviews are
Building a World Class Finance Organization
Assessment Tips
• How often are adjustments made
• How many follow-up items are done
• Take people off the distribution
• “Dye into the system”
• Ask “what would you change?”
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• Document your findings in an organized manner
• Consider using a score sheet/template
• Helps to record findings consistently
• Provides a medium to communicate with the rest of the team
• Template becomes the building block for the next phase – Plan
and Design
Building a World Class Finance Organization
Assessment Tips
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Plan Development
• Determine specific goals
• Create action steps and
champions for each goal
• Establish timing and deliverables
Tips on Improvement Plans
• Leverage assessment template/work
• Be realistic – people have day jobs
• Avoid ambiguous items – “Improve efficiency”
Building a World Class Finance Organization
Develop a Plan
• Use measurable data as much as possible
• Involve the team early and often in the plan
• Buy-in and alignment of where the organization is going
• Mix in short term and long term goals
• Quick wins
• Establish scheduled progress updates
• Celebrate successes to keep momentum
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• Arm champions for success
• Empowerment
• Resources
• Project management 101
• Monitor progress
• Establish monitoring tool
• “Stop light” chart
• Set consistent schedule of update meetings
Building a World Class Finance Organization
Implement
• Include problem solving/resolution opportunities
• Be supportive
• “Pile on” to support requests for information/attendance at
meetings
• Be personal
• Avoid emails – talk to people in person wherever possible
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• Compare actual results to goals
• Understand drivers to variances
• Determine the need to keep the item on the plan
• More improvement to be garnered?
• Cost/benefit of further improvement
• Re-assessment
Building a World Class Finance Organization
Evaluate and Re-Assess
• Update initial assessment
• New circumstances/challenges
• Stakeholder input
• Continuous Improvement is Journey, not a Destination
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• Culture
• Multi-national challenges
• “This is how we do business here”
• Distance
• Language
• “Tone at the Top”
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Succession planning/career opportunities
Competition
Compensation
Legacy Systems/Issues
Company Performance
Building a World Class Finance Organization
Challenges to Building a World Class
Finance Organization
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Private Equity as a
Key Stakeholder
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Quick Facts
Private Equity Firms Headquartered in the U.S.:
Buyout/Growth Expansion Funds Currently Fundraising in the U.S.:
Private Equity-Backed Companies Headquartered in the U.S.:
Employees Hired by U.S. Private Equity-Backed Companies:
Last updated: June 2013. Source: PitchBook, PEGCC Analysis.
2,797 firms
320 funds
17,744
7.5 million
Private Equity
Private Equity – Quick Stats
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U.S. Private Equity Investment. Source: PEGCC
Funds Available for Investment Held by Private Equity
Private Equity
Private Equity – Here to Stay
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U.S. Private Equity Investment. Source: PEGCC
Private Equity Characteristics
• Looking to create value in acquired companies
Private Equity
• Status Quo post acquisition unlikely
• Growth
• Revenue
• Profitability
• Investors Attracted to Stronger than Market Returns
• “Private equity delivers significant benefits to its investors and has a proven track record
of outperforming other traditional asset classes. As of December 2012, private equity
outperformed the S&P 500 Index by 4.3 percentage points, 5.1 percentage points and
7.0 percentage points for three-, five- and ten-year periods.
• A review of 151 public pension funds across the U.S. found that private equity delivered
an 8.8 percent median 10-year annualized return to pension funds, outperforming the
returns of other asset classes (fixed income, listed equity and real estate).”
U.S. Private Equity Investment. Source: PEGCC
• Financially driven people
• EBITDA/Multiples
• Leveraged Buy-Outs
• Typically Non-Operators – Financial Engineers
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• Remember Who Has Taken the Risk
• The equity investment is likely substantial in the business
• Talk the Talk
• EBITDA
• Multiples
• Debt
Private Equity
Key Success Drivers with Private Equity
• Know Your Numbers
• Explainable variances
• Avoid “surprises”
• Robust budget and forecasting
• Operate the Operations
• Seek approval not guidance
• Communication
• Establish an agreed upon communication cadence
• Performance, Performance, Performance
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Questions?
Mark Blaufuss
Chief Financial Officer
Metaldyne Corporation
markblaufuss@metaldyne.com
(734)207-6768
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