As Seen in CFO Studio Magazine Q4 2016 Issue
THE CFO OF ONE OF THE COUNTRY’S LARGEST PRIVATE FAMILY-OWNED COMPANIES BELIEVES IT’S TIME TO FOCUS ON INVESTING IN ACQUISITIONS
-BY JULIE BARKER-
Acquisitions are tightly woven into Joe Ritzel’s professional bio. They are career high points, he feels, representing both the biggest challenges and the greatest successes. The Senior VP Finance and CFO of Day & Zimmermann (D&Z), a Philadelphia-based, century-old, family-owned company that provides construction & engineering, staffing, and defense solutions for leading corporations and governments around the world, made his mark navigating a series of acquisitions. Ritzel now oversees a finance team that files “over 50,000 W2s a year,” though many of those are for contract employees. Ranked #179 on the 2015 “Forbes” America’s Largest Private Companies list, better measures of D&Z’s size are the number of worldwide locations —more than 150—and revenues, which were $2.7 billion in 2015. In 2001 when the previous CFO retired and Ritzel took over the job, revenues were $1.2 billion. “So it’s been a good period of rapid growth,” says Ritzel. Two acquisitions in that period were game changers in terms of size and complexity: a 2006 purchase of Atlantic Services, Inc., which consolidated D&Z’s position in the power services market (D&Z has a footprint at 70 percent of the U.S. nuclear fleet); and the 2015 acquisition of SOC, which D&Z co-owned since 2008, in the government services area which added about $350 million in revenue.
After a flurry of acquisitions around 2006 and 2007, Day & Zimmermann concentrated on weathering the recession and then organic growth. And now, says Ritzel, “we’re in a solid position in all four of our businesses (engineering construction & maintenance; workforce solutions; government services & security; and manufacturing ammunition for the U.S. government and its allies). “So it’s the right time to invest.”
Getting Ready to Acquire
It appears that Ritzel isn’t the only CFO with those thoughts. According to a report by EY last October, the acquisition appetite is at a six-year high, driven by the need to expand at a faster rate than organic growth can provide. Markets are changing, whole industries are being disrupted, and sector boundaries are blurring, said the report. The long-term prospects for growth look positive, another factor spurring the interest of senior executives in 19 industry sectors, 59 percent of whom expected to pursue acquisitions in the 12 months following that survey, which took place in August and September of last year.
Ritzel says seeking out “the right strategic fit and the right cultural fit” makes the process of acquisition more of a puzzle than it would seem on the surface. You can buy a business that complements your main business, which is how D&Z got into power maintenance in the 1980s.
Or you can buy a competitor, which D&Z did in 1999. The company acquired, Mason & Hanger, was actually in three of the four businesses that D&Z was in; everything but staffing. For that reason alone, says Ritzel, “it was a great deal and the largest in company history.” Ritzel was on the front lines of the purchase and integration as VP and Controller for the then Government Services group.
In this 18-month period, he oversaw that integration, while at the same time the company experienced a changeover in the CEO’s office as Hal Yoh replaced his father and the third generation took over the reins of the family business. At the same time, with the installation of its first ERP system, SAP, the company hit some bumps in the road. “We were having trouble processing invoices. It was a nail-biter of a time, and we had just done the biggest acquisition we had ever done,” says Ritzel.
He adds the capper: “Put those three things together and that’s when I became CFO,” stepping into the top finance job at D&Z on January 1, 2001.
Handling the Challenges
The integration of the Mason & Hanger acquisition went pretty smoothly. Having been involved from the start, Ritzel says, he worked to “get all of the synergies out of it.” The startup of SAP was more challenging. Some of D&Z’s billing is complex, Ritzel admits. Government invoices, for example, have to be precise, “down into what they call CLIN (contract line item number) level billing.” He convened teams together to focus on “what had to happen,” not just to straighten out the invoicing problem, but to deliver the reports that were needed by the Business Unit management.
He says the hard work was worthwhile. “This truly enabled us to change processes and get people more focused. It was more than just putting in an ERP. By 2003 we got everything streamlined and operating more efficiently, and that really jumped us to the next level.”
Dividing His Time
Ritzel has a document that he hands out to all the folks in Finance. The document outlines in clear color blocks the scope and potential value of the six critical areas that financial work is involved with, from transaction processing to regulatory reporting to management reporting, to decision support and analysis to planning and forecasting to performance/value/risk management. “The key is that in order to accomplish the priorities in all of those buckets, financial leaders need to work in four different roles. And you need to know what percent of your time should be put toward each role: Operator, Steward, Strategist, Catalyst.”
Back in 1983 when Ritzel joined the company as Controller for a newly acquired subsidiary, he reported up through operations and not through the CFO. But that changed. Financial team members now report directly through the Finance chain and have a dotted line to operations. Being a good business partner requires finance executives to perform all four of the above roles regularly, even Operator, which involves problem-solving, customer focus, and building effective teams. “Getting the percentages proper in terms of how much of those roles are devoted to those six critical areas is what it’s all about.”
Says Ritzel, “I try to make sure I am spending more time each year as a strategist and catalyst as the finance team continues to get better. Generally, the higher up in the organization a finance leader goes, the percent of time in these two categories should increase.”
With his interest in seeking out acquisition targets, it’s a given that Ritzel will be spending more and more time as strategist and catalyst.