Building a World Class Finance Organization/Private

Equity as a Stakeholder

IMA Detroit Chapter Mark BlaufussJanuary 14, 2014 CFO, Metaldyne

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Overview• Summary Background• Building a World Class Finance Organization• Benefits• Characteristics• How to Get There• Challenges

• Private Equity as a Stakeholder• Overview• Characteristics• Key Success Drivers

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Summary Background• Education• BA – Michigan State University

• Professional Services/Consulting• Pricewaterhousecoopers• Alixpartners

• 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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Summary Background – Approach• Understand the stakeholders of the business• Ownership• Customers• Employees• Peers/Management Team

• 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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Benefits of a World Class Finance Organization• 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

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What Does a World Class Finance Organization Look Like?

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Characteristics of a World Class Finance Organization• Culture• Highly communicative• Fact based management/data driven decisions• Promotion of insight/team participation• Blameless environment• Consistently evolving/transforming

• People• 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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Characteristics of a World Class Finance Organization (cont.)• Business Partnering• Recognized as bringing value to the organization• Fact based assessments• Balanced approach to corporate governance• Involvement in non-finance activities

• Cost Efficient Organization• 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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Characteristics of a World Class Finance Organization• Processes/Systems• Automation• System reliance• Risk based authorizations• Documented and defined• Data management/retention

• 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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Adopt a Continuous Improvement Approach

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Assess The Finance Organization

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People

Processes

Controls

Value

• Skills & Capabilities• Job Satisfaction• High Potential

• Basic Business Processes• Exceptions and Inefficiencies• Recurring Errors/Issues

• Identify Key Controls• Segregation of Duties• Delegation of Authority

• Value of Deliverables• Timeliness of Reporting• Overall Cost of the Organization

Assessment Tips

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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• 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?”

Assessment Tips

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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

Develop a Plan

Tips on Improvement Plans• Leverage assessment template/work• Be realistic – people have day jobs• Avoid ambiguous items – “Improve efficiency”• 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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Plan Development

• Determine specific goals • Create action steps and

champions for each goal• Establish timing and deliverables

Implement• Arm champions for success• Empowerment• Resources• Project management 101

• Monitor progress• Establish monitoring tool

• “Stop light” chart• Set consistent schedule of update meetings

• 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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Evaluate and Re-Assess• 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• Update initial assessment• New circumstances/challenges• Stakeholder input

• Continuous Improvement is Journey, not a Destination

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Challenges to Building a World Class Finance Organization• Culture• Multi-national challenges

• “This is how we do business here”• Distance• Language

• “Tone at the Top”• Succession planning/career opportunities• Competition• Compensation• Legacy Systems/Issues• Company Performance

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Private Equity as a Key Stakeholder

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Private Equity – Quick Stats

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Quick FactsPrivate Equity Firms Headquartered in the U.S.: 2,797 firmsBuyout/Growth Expansion Funds Currently Fundraising in the U.S.: 320 fundsPrivate Equity-Backed Companies Headquartered in the U.S.: 17,744 Employees Hired by U.S. Private Equity-Backed Companies: 7.5 million Last updated: June 2013. Source: PitchBook, PEGCC Analysis.

U.S. Private Equity Investment. Source: PEGCC

Private Equity – Here to Stay

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U.S. Private Equity Investment. Source: PEGCC

Funds Available for Investment Held by Private Equity

Private Equity Characteristics• Looking to create value in acquired companies• 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).”

• Financially driven people• EBITDA/Multiples• Leveraged Buy-Outs• Typically Non-Operators – Financial Engineers

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U.S. Private Equity Investment. Source: PEGCC

Key Success Drivers with Private Equity• Remember Who Has Taken the Risk• The equity investment is likely substantial in the business

• Talk the Talk• EBITDA• Multiples• Debt

• 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 BlaufussChief Financial OfficerMetaldyne Corporationmarkblaufuss@metaldyne.com(734)207-6768 25