As Seen in CFO Studio Magazine Q4 2016 Issue




They say there’s more than one way to skin a cat, but when it comes to buying a business, it’s best to follow a tried-and-true formula. That’s the advice of Craig Steeneck, CFO of Pinnacle Foods, a branded foods company that has gobbled up four multimillion-dollar household names —Birds Eye and Wish-Bone among them— in the past five years. “We have an acquisition manual that we call our ‘playbook,’ and every time we purchase and integrate a new business into our own, we use it.”

Mr. Steeneck spoke on “Valuation and Integration —Keys to Successful Buy-side M&A” at a World-Class Companies CFO Dinner, part of CFO Studio’s Executive Dinner Series, held recently at Roots Steakhouse in Morristown, NJ. CFOs from select New Jersey–area companies attended the invitation-only dinner.

Mr. Steeneck said his company has been “highly acquisitive” over the past several years, and “by sticking to an MO that has consistently worked for us, we continue to outpace our competitors in the industry.” He shared his recipe for success with dinner attendees, going through his “playbook” page by page, from beginning to end.

“When a business goes on the market, the first thing you need to do is determine how much it’s worth and what you should be paying for it.” Mr. Steeneck said he relies heavily on support from outside resources to come up with that valuation, and highly recommends this tactic. “I work closely with external bankers and people in the industry to be aware of what’s being sold and for how much. This is one of the most important things I do.”

He also advised completing a five-year forecast, including cash flow, to come up to a discounted cash flow. And then benchmark what that five-year free cash flow translates to against other deals that have occurred in the marketplace in order to help determine what to pay for the business. He cautioned attendees to keep in mind that, these days, companies don’t come cheap. “Acquisitions are more expensive now than they’ve been for quite some time. In fact, they’re at an all-time high, particularly in the food industry.”

Searching for Synergies

The only way to justify paying a premium to acquire a business, Mr. Steeneck noted, is with cost synergies, which translates to the elimination of duplicative Sales, General, and Administrative Costs, or SG&A costs; in other words, the purchase reduces overhead expenses and head count. And don’t overlook the scale benefit, he added, that is achieved from the supply chain. “Adding the weight of the new company’s product to my truck, for instance, allows me to reduce my overall shipping costs.”

Once a price is negotiated and both sides are ready to shake on it, the buyer should do a hefty amount of due diligence before signing on the dotted line. “Kick the tires,” Mr. Steeneck advised. “Understand exactly what you’re getting.”

When a deal is finally in place, it’s time to set a plan for integration—and it must include a timeline. “Do whatever you can to execute that timeline and put the newly purchased company on your platform as quickly as possible” after the acquisition. He said, “If you leave it dangling out there on its own and separate, you don’t get the cost savings as soon.” Plus, he pointed out, “You could allow for some bad practices that the company might have employed in the past to continue.” Also, bringing products together in cross-promotional efforts (e.g. bagels and spread) will help to drive revenue.

Again, Mr. Steeneck advised seeking “outside help” to organize and structure the integration, in an attempt to “stay on course and integrate as quickly as possible” in order to realize the cost savings. “It’s very difficult to get people to focus on their day job while trying to do all of this integration work” on the acquisition, he said. “Flex up your resources with consultants who will help you meet your very fast and aggressive timeline.” Otherwise, he cautioned, “something will go afoul with either the base business or the newly acquired one.”

The View from the Top

Mr. Steeneck spends about 25 percent of his time on M&A-related activities, including sourcing possible acquisition opportunities, and performing due diligence on integration efforts. “One of the most important things I do as CFO is look for acquisitions. I keep my ear to the ground as I go through the rest of my day-to-day, making sure I’m always aware of what’s happening in the industry in terms of available assets and when they’re coming up for sale.”

He said this is something that is very much managed “at the top of the house” at Pinnacle Foods, noting that the CEO joins him in such endeavors. “We are always in the market and prospecting, while keeping everyone else focused on their daily workload.”

David Chambers, Vice President and CFO of Jaguar Land Rover North America, attended the dinner and in an interview afterwards expressed surprise over how involved Mr. Steeneck and his CEO are in the process. “Most companies likely employ an M&A team to identify opportunities, and then bring them forward to the CFO for review, and finally up to the CEO and the Board.” He thinks the Pinnacle way makes better sense. “They do it together, and so there is alignment from the beginning, which makes for a more efficient process.”

Mr. Chambers noted that “All CFOs look for benefits from an acquisition, but realizing them is not always as easy.” The way Mr. Steeneck operates, “he has this intimate knowledge with a hands-on approach, so that leads to a higher level of success.”

In an interview, Ralf Hermkens, Executive Consultant/Principal at Hermkens Consulting, LLC, called Mr. Steeneck’s playbook “invaluable.” As someone who has successfully completed multiple acquisitions and integrations in his own career, Mr. Hermkens added that Mr. Steeneck’s best practices are “easily transferable to other sectors.”

Mr. Steeneck agreed, adding, “You have to be disciplined and regimented in order to stick to it and make it work.” And that holds true, he said, no matter where you work.

Copyright 2017