In The Pressure Cooker



As Seen in CFO Studio Magazine Q3 2015 Issue Cover Story



For anyone who works at Pinnacle Foods, the six weeks that began on May 12, 2014, are unforgettable. During this stretch, the future of the company hung in the balance, as the fate of the Parsippany, NJ–based producer, marketer, and distributor of such American dining staples as Birds Eye frozen vegetables, Duncan Hines baking products, and Log Cabin syrup was kicked around far off in Chicago. It started with an unsolicited offer from Hillshire Brands, a Chicago-based food company, to acquire Pinnacle. “That was a really dark day in Pinnacle history,” says Craig Steeneck, Pinnacle’s 57-year-old chief financial officer. Fourteen months earlier, Steeneck and his finance team had borne the lead role in taking Pinnacle public. The takeover news ate at his sense of accomplishment. “It felt a bit like being a victim of our own success,” he says.

Now asked to lead the integration with Hillshire (whose brands include Jimmy Dean sausage and Ball Park franks), Steeneck believed that would be his last act for Pinnacle Foods. Conventional wisdom has it that CEOs and CFOs don’t usually hang around after an acquisition. “The prospect of leaving behind all that the Pinnacle team built was unsettling,” he says. For nine years, he’d put his considerable talent into helping shape, grow, and define the business. Disheartened, he made the trip to Chicago to “lay out the shell of what the integration plan would look like.”

Two weeks later, everything changed. Pilgrim’s Pride (a chicken producer, processor, marketer, and distributor) announced a bid to buy Hillshire. A couple of days after that, another shift occurred, when Tyson Foods (a global chicken, beef, and pork producer) topped Pilgrim’s offer for Hillshire—and a bidding war ensued. It soon became clear that the sausage maker, Hillshire, would be bought out by the highest bidder, which ended up being Tyson, and that Hillshire would not acquire Pinnacle.

Still, Pinnacle had accepted a legally binding offer that had not been officially withdrawn by the Hillshire Board, so the company was bound to the deal and continued to play along, so as not to jeopardize a significant break-up fee. “It was very disruptive,” says Steeneck. “We had to keep people focused on continuing to deliver the business. We carved out all the Hillshire activity and noise to a small group of people, so we weren’t distracting the rest of the team.” But the Wall Street Journal, the Star-Ledger, and CNBC, not to mention online news sources, kept the story alive throughout the six-week period.

Steeneck says that it wasn’t until July 1, 2014, when the Hillshire board voted in favor of taking the Tyson offer, and jettisoned plans to pursue acquiring Pinnacle, that the over 4,000 employees could raise a cheer for their independence and return to business as usual. Also, Pinnacle could then collect the $163 million break-up fee.

Why Pinnacle Was a Target

Pinnacle Foods manufactures products at 13 plants that it owns. Its brands hold the No. 1 or No. 2 market position in 10 of the 14 major categories where they compete. And, Pinnacle generates significant cash flow. “Our cash-to-earnings ratio is enormously high,” says Steeneck: 90 percent at year-end 2014. “That’s one of the characteristics of the Pinnacle portfolio that differentiates us from our peers. We’re able to convert earnings into cash at a very high percentage,” he says.

The Pinnacle business was created from a number of acquisitions (see Sidebar, this page). And the company continued to grow by buying brands that the nation’s large food companies deemed to be non-strategic. As a mid-cap company, with lower overhead, Pinnacle was able to put more attention into the brands it acquired, says Steeneck. Importantly, the brands were charged lower overhead than they’d been saddled with under prior owners.

In order to make those acquisitions and get solid returns from them, Pinnacle relied on tight financial controls and Steeneck’s oversight. In 2007, Pinnacle was acquired by The Blackstone Group and the focus shifted to building a company that could someday go public. Toward that end, in 2009 Pinnacle recruited Bob Gamgort as CEO and made its most significant acquisition, purchasing Birds Eye Foods. “That transaction was transformative for Pinnacle, as it virtually doubled our size,” says Steeneck.

When Pinnacle Foods created the prospectus, the S-1, that was filed with the SEC in connection with its March 2013 IPO, it was Steeneck’s finance team that took the lead, coordinating the efforts of in-house counsel and outside banking and legal advisors, to navigate the organization through this process. This grueling effort included compiling “a 250-page document containing extensive financial data, along with strategic and operational information that needed to be cleared by the SEC,” says Steeneck. Once cleared and with a compelling investor presentation in hand, he, Gamgort and Maria Sceppaguercio, who was brought in at that time to head up a new Investor Relations function, then articulated the story for investors during a 10-day investor road show.

Creating value by “Reinvigorating Iconic Brands” became the company’s mission, with a focus on prioritizing investment spending across the portfolio, expanding margins through productivity, maintaining a lean and efficient organization structure, and driving strong cash flow to create significant shareholder returns. Pinnacle emphasized during the IPO that acquisitions represented upside to the value creation the base business would generate.

“We operate in an industry and categories that are low-growth, but we’re able to create value by investing differentially in the highest-return brands in our portfolio, continuing to reduce our supply chain costs, and maintaining very lean SG&A overhead that minimizes the tax on our brands,” says Steeneck.

Investors responded well. The company priced the IPO at $20 per share. On March 28, 2013, the first day of trading, the stock (NYSE: PF) opened above that price and ended the day up more than 11 percent. Blackstone didn’t sell any of its shares at the IPO, instead choosing to hold for the significant value-creation potential it believed the company would — and ultimately did — realize.

A CFO With Good Chops

Until Blackstone became Pinnacle’s owner in 2007, Steeneck had spent considerable time fixing non-performing areas of the company with better systems and talent. In 2007, the focus changed to investing in the business so as to build a world-class food company.

His prior experience was extremely useful. Early in his career, he worked 13 years at Reckitt & Colman (now Reckitt Benckiser), becoming CFO of its North American operations. There he was involved in acquisitions of such brands as Woolite and Lysol to grow the company’s portfolio (and it was there that he met his wife, Sandra). He held his first public company CFO position at International Home Foods (Chef Boyardee, Gulden’s Mustard, Bumble Bee) and later joined Pinnacle Foods as executive vice president of finance, overseeing supply chain and IT.

Pinnacle had bought Aurora Foods a year prior, and was experiencing problems with customer service. Also, the logistics network was costing significantly more than industry benchmarks indicated necessary. “We had to put much better tools and processes in place, which we ultimately did,” he says. These tools and processes were critical in 2009 as the company embarked on the integration of the Birds Eye Foods acquisition, and in 2013 integrating the Wish-Bone business. “We fully integrated Birds Eye within six months and exceeded the acquisition plan on all key metrics. We had similar success with Wish-Bone.”

Today, two years after proving the company’s value with its successful IPO, Steeneck is still excited by the position he holds and the issues that come up. “I think the best part of my job is being a trusted advisor to the management team and having to be on my game day in and day out,” he says. “We are fighting for market share, we’re fighting for share of shelf, we’re fighting for quality employees, and we’re fighting for investor dollars. So there’s not much room for error. But we’re faster, we’re nimbler, we’re less bureaucratic. By making decisions faster in this world, we’re able to outmaneuver our competition.” Screenshot (75)

Looking Forward

When Pinnacle received the $163 million break-up fee, the company used most of that money to pay down debt. It also needed to ensure retention, so the company sweetened its bonus plan for the year and granted stock to all salaried employees who did not receive equity as part of their compensation. “One important lesson from the Hillshire event was how important it is for employees to be owners and have a direct stake in the company’s future,” says Steeneck.

The acquisitions that defined Pinnacle Foods’ growth over the course of the company’s first decade are harder to come by now. But it’s possible to improve margins by reinvigorating, for example, the male-focused TV dinner Hungry-Man with new flavors and combinations that can raise the price point: Fried Chicken and Waffles, anyone?

Steeneck’s finance team plays an active role in this sort of product innovation. Senior-level finance staff members are integrated into the business units in sales, marketing, and supply chain, with dual reporting responsibilities. Beyond costing out and evaluating new products, says Steeneck, “They’re involved in the development of the marketing and sales plans, and linking those plans to the supply chain.”

Finance team members are thus in a position to influence the brand teams to make better decisions, whether it’s forecasting sales or determining a future path. “You don’t want your finance team just looking in the rearview mirror. You want them working as cross-functional business partners to support better decision-making,” he says.

And Steeneck’s choice of people to support the commercial side of the business and help in the decision-making process gives him a maestro’s role in Reinvigorating Iconic Brands.

Preparing for Private Equity


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As Seen in CFO Studio Magazine Q1/Q2 2016 Issue


Going after private equity funding was the focus of a CFO Studio Executive Dinner held at Blue Morel in Morristown, NJ. Luke McKinnon, recently having served as Chief Financial Officer of a global engineering services company, was the discussion leader.

“Going out and raising privScreenshot (17)ate equity is a huge effort,” said Mr. McKinnon.

Successful private equity firms have financial controls in place that focus on the basics of performance— revenue, operating margins, and cash flow. McKinnon was tasked with finding a long-term minority-interest investor for the global engineering services company he was part of, one who would be willing to have a seven- to ten-year relationship. “We found three firms interested in this length of term. Although they are called private equity, many of those investment companies are more family-run type places,” explained McKinnon.

The company McKinnon was with was global in nature, with operations in countries including Afghanistan, Iraq, Sudan, the Congo, Vietnam, Thailand, and Indonesia. “At one point, I had 2,000 bank accounts around the world,” said McKinnon.

This wasn’t the only challenge the private equity firm had to contend with. “They are focused on Day Sales Outstanding (DSOs) and cash flows,” said McKinnon.

This comment led to a discussion about DSOs. Bill Baldwin, Chief Financial Officer, Kepner-Tregoe, Inc., a Princeton, NJ–based capability development and consulting solutions company said, “Our most troublesome country is India, whether it’s with a major IT company or another Fortune 500 client that we deal, in India it’s a very, very long payment cycle.”

Delayed payments have become the norm. Historically, government agencies are known to be sluggish. “We provide engineering and consulting services to the government sector, mainly municipalities and counties, and they’re always dealing with funding and processing issues, so we’re probably at 115 to 130 days,” said Michael Dentici, Senior Vice President, Chief Financial Officer, T&M Associates, an engineering, planning, and environmental consulting firm based in Middletown, NJ.

Procurement and finance are becoming more interwoven than ever. “We’ve been involved in deals where the client’s procurement executives say, ‘We require 60- to 90-day terms, to which we counter that our prices will go up 15 percent, to which the client often agrees. This makes absolutely no financial sense, because the 15 percent fee increase is much more than the cost of money. There is a disconnect in the performance systems and communications between procurement and finance when this happens,” said Mr. Baldwin.

Peter Pfreundschuh, Vice President Finance and Chief Financial Officer, Immunomedics, Inc., a Morris Plains, NJ– based biopharmaceutical company, said not only are payments in each country unique, but they are ever changing. “When I first audited payments with some French companies, we were seeing 360-day payment cycles. A law was then enacted in which companies were required to pay on time.”

John McAndris Jr., Chief Financial Officer and Vice President of Finance, JJM Consulting, LLC was previously in charge of Latin America for Pfizer/Wyeth. “Venezuela is a country that is very tough, as many companies there never release money. You have to go to the government to get a special dispensation to get the money out of the country,” he explained. Screenshot (16)

This discussion put things in perspective for Andrew Wood, Chief Financial Officer, J. Fletcher Creamer & Son, Inc., a Hackensack, NJ–based contractor. “About half of our work is with government agencies and the other half is with private companies. Most of our work is with utility companies, which are semi-regulated. I used to complain…until I heard you guys. Our DSOs are in that 65- to 68-day range, which is not that bad, compared to all of you,” said Wood.

Selling accounts receivable is a standard form of managing cash flow and is something with which Gunther Mertens has experience. Mr. Mertens is President, North America Region of Elmwood Park, NJ– based Agfa Corporation, the North American arm of global imaging leader Agfa-Gevaert N.V. “Our DSO is actually 45 days, which is good. But what we see is that some bigger companies are asking us to offer extended-payment terms beyond the standard 30 days, in exchange for a supplier-side financing program,” said Mertens.

As an example, Mertens explains that if a customer owes Agfa $1,000 and payment term is 60 days, the customer’s bank will pay Agfa $995 after only 10 days. The customer in turn will pay his bank $1,000 after 60 days. “So the customer achieves his goal of improved cash flow by keeping his cash 30 days longer,” said Mertens. “The customer tries to make this palatable to Agfa by not deteriorating vendor’s cash flow by 30 days and instead improving vendor’s cash flow by 20 days. But there is a cost to the vendor similar to if the vendor were to sell its receivables.”

Prioritizing revenue cycle issues was of paramount interest to most CFOs at the CFO Studio Executive Dinner. “If you don’t bill them, they don’t pay. The start-up time is in the invoice. If you change the terms of your agreements, so that your billing point is earlier, you can actually move forward the payment,” said Barry Lederman, Chief Financial Officer, Whippany, NJ–based Halo Pharmaceutical, a contract development and manufacturing organization that provides scientific and development expertise.

A steady billing cycle is key to success. “When I was in professional services, one of the things we changed right away was, instead of billing at the end of the month, we started billing every two weeks,” said Michael Roth, Chief Financial Officer, Chief Operating Officer, Beefeaters Holding Company, a North Bergen, NJ–based manufacturer of dog treats. “We dramatically increased cash flow by billing major customers every two weeks.”

The Right Partner Screenshot (18)

“One of the most important lessons for everybody is to get the right people to invest,” said Ed Schultz, Principal, of New Jersey–based Highlands Business Group, a consulting firm. “It’s important to make sure the due diligence is right, that the fit is correct, and that you’re not going to get beaten up. A lot of deals go south because the private equity firm didn’t listen and didn’t gain a solid understanding of the business. Sometimes, they only want to do the deal and aren’t thinking about who they’re investing in.”

The correct fit is important. “There are two things to consider: style and strategy. Does everybody agree about what the company is going to look like in the future? Is there knowledge of the industry and can you really get along with these folks? What is their style going to be on a tactical basis, too?” ponders New York City–based Curt Cornwell, Partner, Transaction Services, PricewaterhouseCoopers, a leading professional services network, and a CFO Studio Business Development Partner.

Andrew Savadelis, Chief Financial Officer, Angion Biomedica Corporation, a Uniondale, NY–based biopharmaceutical company, pointed out the uniqueness of the arrangement made at the company McKinnon had worked for. “It’s not private equity in normal terms. It sounds like it is more Venture Capital than Private Equity. VCs tend to take a longer-term perspective, but they also look for higher returns on their capital gains.”

Many agreed with Savadelis. “I concur, as the VC model typically includes raising a fund that is very industry-centric,” said Gregg Kam, Chief Financial Officer, Sonneborn, a Parsippany, NJ–based manufacturer and supplier of high-purity specialty hydrocarbons.

When preparing for private equity, sell-side reports have become a trend, according to PricewaterhouseCoopers. A selling company has an accounting firm come in, prepare a quality earnings analysis, a debt analysis, as well as details on trends being experienced, and that book goes out.

Allen Lane, Senior Vice President and Chief Financial Officer, Solix, a Parsippany, NJ–based provider of program administration, eligibility determination, and call center services, said, “I’ve been reading through a lot of these recently. There is a definite marketing slant on the part of the seller in these documents. They are a nice road map to begin your discussions with, but you still have to do a full due diligence review.”

Mr. McAndris of JJM Consulting said sell-side reports help from another perspective. “You can steer the course of where you want the buyer to look. You’re controlling the conversation,” he added.

In some instances, these procedures are not necessary. “We were headed down the road of going public and [our investors] came along and made us an offer that was about 50 percent above our projected IPO price. That’s what we call a no-brainer,” said Bert Marchio, Chief Accounting and Operations Officer, Edge Therapeutics, a Berkeley Heights, NJ–based clinical-stage biopharmaceutical company.

There are cases where acquirers don’t see the forest for the trees. “Every due diligence sale that I’ve been through, some companies got involved and looked at minutiae that didn’t really mean anything. For example, ‘I see you spent $22,000 on a particular purchase. What was it? Oh, it was a Christmas party,’ ” said Mr. Kam. “They often miss the big picture about the business in due diligence, focusing on immaterial items.”

Explaining Finance



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As Seen in CFO Studio Magazine Q1/Q2 2016 Issue and CFO Studio On-Camera Interview


Interview by Andrew Zezas

Elizabeth Miller has been Vice President, Finance and Treasurer of Mauser USA since 2005, having previously held a similar position at Russell-Stanley Corp. Mauser USA is privately held and is a leading industrial packaging solutions provider that manufactures steel, plastic, and fiber drums as well as intermediate bulk containers. The company is based in East Brunswick, NJ. Andrew Zezas, Publisher of CFO Studio magazine and host of CFO Studio On-Camera, spoke with Ms. Miller about finance for non-finance managers.


(ANDREW ZEZAS) We know that in any profitable business, financial decisions impact almost every aspect of a company, and educating non-financial managers is a great way to improve decision-making and increase a company’s profitability, so I applaud your efforts. Recently you visited a number of Mauser facilities for the purpose of educating nonfinancial managers on aspects of finance. Who did you present to?

ELIZABETH MILLER: Essentially all of the plant leadership, including the customer service team, other members of the plant manager’s direct team, quality managers, production managers. We also included our sales teams in the presentations.


What drove you to develop the program?

MILLER: We wanted our plant managers to have a better understanding of what the key drivers of our P&L were. We have a great group on the operations team, but within this group we had varying levels of financial expertise, so the plan was to really bring everybody up to the same level.


Talk to me about the main topics of the presentation. You weren’t trying to teach finance per se. You were trying to teach operations people about finance.

MILLER: Correct. It was a very high-level presentation, and we really covered the three main financial statements, talked about the P&L, the balance sheet, and the cash floScreenshot (9)w. Focus was primarily on the P&L, given that our ultimate goal was to drive profitability. We talked about cost containment, and then also what drives your P&L, and taking a look at the various analyses that our controlling team does each month when we close off a period, and how does that compare to a prior period and what were the differences a result of, and how does it compare to your budget, and what were those differences a result of.


Okay, so truly tying operations and finance together.

MILLER: Correct, and we also covered working capital and how their everyday decisions affect our cash flow. And the last part of a presentation was on the reports that Mauser puts out internally, and we kind of went through them and said, “This is why we send out this report. Here’s what we want you to get out of it. This is what you should be thinking about when you’re reading it,” and just kind of tied everything together.


In the future, what would you do differently?

MILLER: We would probably focus on smaller groups, I would say no more than six, keeping the same functional areas together.




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