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Managing the deal-making cycle during portfolio restructuring - Seppo Parvi, CFO Bekaert — Transcript

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0:01Brought to you by [music] Robert
0:02Walters, your global talent solutions
0:05provider.
0:09>> [music]
0:12>> Welcome to a new episode of the CFO
0:13Playbook. This is the format where we
0:15move beyond the broad conversation and
0:17focus on one concrete CFO challenge. One
0:20case, one decision cycle, one practical
0:24masterclass. Today, I'm joined by Seppo
0:27Barvi, CFO of Big Card, and our topic is
0:30managing the deal-making cycle as a CFO
0:33during a business portfolio
0:34restructuring. Seppo, welcome to the CFO
0:37Playbook. It's a pleasure having I'll
0:39call it the second part of our
0:40conversation. Um today we are here to
0:43talk about the the the the topic I spoke
0:45about. How do you actually manage the
0:46the deal-making cycle during a portfolio
0:49restructuring? But for the audience who
0:51don't know you, can you please give us a
0:53short intro of who you are?
0:54>> Sure. Sure. And thanks for inviting for
0:57this part as well.
0:58>> Yes.
0:59>> So, I am I am uh originally from
1:02Finland. Yeah, I moved [clears throat]
1:03to Belgium two years ago. And and in
1:06addition to Belgium and and Finland, I
1:08have also worked two years in Poland and
1:10six years in Turkey. I'm married. I have
1:13two adult kids from my previous
1:14marriage. My son works and and lives in
1:17London.
1:17>> Mhm.
1:18>> And my my daughter lives in Finland
1:20still. We are going to call her.
1:22>> Okay.
1:23>> So, where would you like to take this
1:25because I think you prepared something
1:26for us, an example. But before we go
1:28into the slides, uh Seppo, why is this
1:31topic so important for you?
1:32>> I think it's it's a good example about
1:34the challenges when you go through major
1:36acquisition.
1:37>> Mhm.
1:37>> It's about [clears throat] how you
1:38prepare for the acquisition. What can
1:41you do or what should you do if things
1:43don't work out
1:44>> Yes.
1:44>> as you have planned. Because that's very
1:45much the role of CFO, manage the risks
1:48and also manage the downturn and manage
1:51the balance sheet when when you are in a
1:52tight in a tight spot.
1:54>> Great. So, because you are obviously now
1:56the CFO of Big Card, we are not talking
1:57about Pekka. This is an example from
1:59your past. Can you give us a bit more
2:01context of the example that you've
2:03prepared?
2:04>> Sure. Sure. It's like you said about my
2:06past in Finland some years back. So some
2:08years before I joined Pekka. And that is
2:11about forest industry in Finland.
2:13>> Okay.
2:13>> And I think it's a good example about
2:15the cycle and and and and and the
2:17challenges you can face.
2:18>> Okay.
2:18>> And actually I was I was recruited to
2:20that company to work as a CFO. It was
2:23actually my first CFO position by the
2:24way. [clears throat]
2:25So it was a good school.
2:26>> Yeah.
2:27>> And and and what had happened is that a
2:29couple years before I joined the company
2:30I was recruited they had made major
2:33acquisition in in in paper industry.
2:36>> Okay.
2:37>> capacity and and and sort of taken a
2:40master step.
2:41>> Okay.
2:41>> it looked good after first one or two
2:43years. Actually they made record
2:45profits.
2:45>> Nice.
2:46>> But then we all remember what happened
2:47when internet came, digitalization came.
2:51>> Mhm.
2:51>> There was serious drop of of uh demand
2:54for printed
2:55>> Yes.
2:55>> printing papers. Like newsprint, for
2:57magazine paper,
2:59office paper.
3:00>> Just think how it was 10, 15 years ago.
3:02>> We used to print a lot more. Exactly.
3:04>> And now we have to go to printer door.
3:06Very seldom you do this. You you do
3:07everything on on your screen.
3:09>> Exactly.
3:09>> And and and one challenge at the time
3:11for paper industry was that you know
3:13people thought that there were these
3:15strong cycles. Either use a three or
3:17five year cycles. You know, three, five
3:19bad years then comes good years. And
3:21people waited and waited before
3:23realizing it's not normal or cycle.
3:25>> Okay.
3:26>> So the fundamental change
3:28>> Okay. Great.
3:28>> in the demand.
3:29>> Okay.
3:30So you know what?
3:32Take us through. Can you can you take me
3:34through what is on the slide that you're
3:36showing us?
3:36>> Yeah. Well, like like I we said what
3:39this also is a good example that when
3:41when you go into acquisition you should
3:43think through what and why.
3:45>> Mhm.
3:46>> What are the underlying drivers? Not
3:47just look at the back mirror or how how
3:50past has been. But also look into the
3:52future without the forecast for the
3:54demand, what are the black swans that
3:57can hit you. Because digitalization and
3:59internet in this this case was the black
4:01swan.
4:02>> Exactly.
4:03>> And and it's of course easy to say
4:04afterwards, "Hey, why didn't you see
4:06it?" Because when you are in the middle
4:07of it, of course you are excited and
4:09things that history will repeat itself.
4:12>> Yeah.
4:12>> And and another another important thing
4:14is that when when you look at the
4:16portfolio and balance sheet, never
4:19stretch your balance sheet too too far.
4:22If if you stretch it to maximum, you
4:24have no head room if the rainy day
4:26comes. If if if the cash flow is not
4:28what you expected.
4:29>> Yeah, so you need flexibility.
4:30>> You need the flexibility and and
4:33I strongly believe in a cash flow. And
4:35also important to remember that even if
4:37you have one or two bad years, you don't
4:39go bankrupt.
4:40>> Yeah, you actually mentioned this in the
4:41in our previous call.
4:42>> Yeah, exactly. That's the other thing.
4:44You need to take care of the liquidity
4:45because companies go bankrupt because
4:47they run out of cash and liquidity. So
4:49that's what another key key learning
4:51from from this.
4:53>> Great.
4:54What else do you want to touch on?
4:56>> Yeah, I think it technically comes down
4:57to to the fact that when you are in
4:59trouble
4:59>> Mhm.
5:00>> and and first of all, like I said, you
5:02should always make sure that you have
5:03enough buffers because that gives you
5:06decision power.
5:08>> Yes.
5:08>> If you don't have buffers, if if you
5:09need to go to market when you are
5:11stressed, someone else will tell you
5:13what you can do and what you cannot do.
5:16>> Mhm.
5:16>> So protect liquidity.
5:18>> Mhm.
5:19>> Another important thing is that when you
5:20are in in in difficult spot or
5:22situation, it is to maintain confidence.
5:24You need to be very careful and and and
5:26and straightforward in your
5:28communication to build confidence in
5:30your stakeholders, to banks, financial
5:33institutions.
5:34>> it translate to being transparent?
5:36Because when you are in dire strait,
5:38people know. Yeah. So how do you
5:40maintain confidence? Is it by being
5:41transparent?
5:42>> Yeah, exactly. Being transparent,
5:43telling what is the situation, telling
5:45how you're going to get out of it, how
5:47you manage it because that's the key
5:49because people want to see forward. They
5:50would They want to be sure that you can
5:53meet your commitments.
5:54>> And repay them.
5:55>> You know, it's exactly I mean
5:57people want to get paid if they are
5:59working for you. Banks want to get the
6:01interest. They want to get their money
6:03back.
6:04Investors, shareholders, they want to
6:06get dividends. They want to see that the
6:08sale price goes up, not down.
6:10>> Yes.
6:10>> And if you don't manage that properly,
6:12>> Mhm.
6:12>> you will have a perfect storm.
6:14>> Yes.
6:14>> And if you are sort of transparent in
6:16communication, very clear on what is
6:18your plan,
6:19>> Mhm.
6:19>> how you're going to fix this,
6:21then then then
6:23you you you you are going to have
6:24>> Okay.
6:25>> other problems in your bank account. And
6:27at the third point is that you have
6:28options.
6:29>> Mhm.
6:30>> You know how do how what how can you
6:31manage because if you lose the liquidity
6:34buffer,
6:35what can you do? What what can you
6:37divest?
6:38What are the other levers? What are the
6:40working capital management? How can you
6:42release capital from from from working
6:44capital?
6:44>> Do you do that by scenario planning up
6:46front?
6:47>> You you Yeah, it's it's always
6:48continuous work.
6:50>> Mhm.
6:50>> And and there are always levers that you
6:52can take and and sort of push to certain
6:54extremes.
6:54>> Yeah.
6:55>> It's also about capital expenditure. In
6:57that situation, you need to watch your
6:58cash flow
6:59>> Mhm.
6:59>> and maybe only use maintenance capex.
7:03>> Mhm.
7:03>> Maintenance investments. You don't think
7:04about I invest here and there to
7:06>> capex uh projects.
7:07>> You need to watch your cash flow
7:09>> Yes.
7:09>> in order not to not to run into trouble.
7:11And then you need to think about okay, I
7:12invest in growth later.
7:14>> Yes.
7:15>> And also another thing is that if you
7:16think about the divestments, it's also a
7:18question that what to divest and not to.
7:21>> Mhm.
7:21>> And and do you do it in what kind of
7:23facing do you do? Plant by plant,
7:25business by business, or do you make
7:26bigger bulk moves? Those normally take
7:29more time.
7:29>> Yes.
7:29>> It's a difference a bit how much time
7:31you have.
7:32>> As well as then profit improvement
7:33programs and other sort of basic things
7:36that have to
7:36>> What is the next step?
7:38From from there, what what where do you
7:40move on to?
7:41>> Yeah, then of course I mean
7:43I I I want to just spend a bit a bit of
7:45time on how to how to manage the
7:47portfolio because very easily you you go
7:49into a track that you just solve the
7:51current crisis on paper.
7:52>> [clears throat]
7:53>> And you know, you do whatever to save
7:55the company. But you should stop and
7:57think
7:58Okay.
7:59What is the strategy going forward? What
8:02do you want to become?
8:03>> Mhm.
8:03>> What kind of company you want to be when
8:05you come out of the crisis? Because in
8:07the best situation you will be stronger
8:09when you come out of the crisis than you
8:10were before.
8:12But if you just run before you think
8:15>> Mhm.
8:15>> it might be that [clears throat] you're
8:16divesting something or making changes
8:18that you will regret later.
8:20>> Mhm.
8:20>> So, you need to be very clear that what
8:21is my future position. Then you can be
8:23more clear also what to divest and what
8:25not to divest.
8:26>> Mhm.
8:27>> And there are also [clears throat]
8:28always businesses if if you think about
8:30that you you want to hold,
8:32you want to invest, you want to harvest,
8:34or divest. You need to be also very
8:35clear with capital allocation that in
8:37that situation where do you invest?
8:39Because you don't want to invest
8:40something that you don't see a future.
8:42>> Yes.
8:43>> And and there also comes the question
8:44about divestments that
8:47do you divest?
8:49Do you take bigger risk, make bigger
8:51moves, or smaller moves? And also
8:53important question is the is the
8:54shareholders. Can you cut dividend? Can
8:57you stop paying dividend?
8:58>> That's a trigger.
8:58>> Because that was another case we we we
9:00sort of
9:01were thinking in in in my previous
9:03company I mentioned. And what we decided
9:05we did not never totally stop dividends
9:08because we felt and knew that we had
9:10pension companies voices or pension
9:12funds because they need cash flow
9:13>> Yes.
9:14>> to pay pensions.
9:15>> Sure.
9:16>> Or insurance companies to to to pay pay
9:19pay sort of if they were damaged by
9:20their customers. So, they need cash
9:22flow. So, that is another thing also to
9:23show that you still can are able to keep
9:25up at least a small dividend.
9:27>> Yes.
9:27>> Because if you cut it totally, that can
9:29be disastrous for your your your your
9:31share price.
9:32>> Yes.
9:32>> So, that's another thing to keep keep in
9:34mind in that that situation. And
9:38like I cannot
9:40emphasize too much liquidity because if
9:42you have good liquidity and buffers,
9:43that buys you time.
9:45It's the same about the good
9:46communication. That buys you time that
9:48you can so get the confidence of market
9:50that you can solve it. Of course, it
9:52depends a bit bit about your track
9:54record.
9:55Because if you have been also earlier
9:57good in communicating, you can build
9:59trust on market, trust on your
10:01stakeholders that you know what you are
10:02doing and that you are also not hiding
10:04something.
10:05>> What happens, sorry for interrupting,
10:07what happens if you don't have the
10:09liquidity and you still have to go
10:10through this process?
10:12>> Well, I think first of all, if you are
10:14too late, you don't have buffers,
10:15typically it's too late.
10:17>> It's just done.
10:18>> It's then you are done because because
10:20it's very difficult to go out to the
10:22market and raise more capital
10:24if you already stressed and in trouble
10:26[clears throat] or it's going to have
10:28awfully high cost.
10:29>> Yes.
10:30>> And of course, typically that's what you
10:31see junk bonds and others. I mean, they
10:33sell [clears throat]
10:33high high cost of capital for those who
10:36are in trouble. That also make it just
10:38makes it more difficult.
10:39>> Yeah.
10:40>> Of course, you can you can maybe
10:42buy some more time, but then you need to
10:44have a good plan how to
10:46>> Get get out of those flows.
10:47>> Okay.
10:48>> So that so that you don't want to be be
10:49stuck there.
10:50>> Clear.
10:52>> So in in a way, if you look at the
10:54restructuring and learnings and and what
10:56I want to want to [clears throat]
10:58emphasize and I know I'm repeating
11:00myself, but cash is king. Liquidity,
11:02take care of the liquidity and make sure
11:04that you have headroom when it comes to
11:06your your your leverage targets, net
11:09debt to EBITDA, that you don't hit the
11:11ceiling immediately, but you have enough
11:13time to maneuver. And if you go beyond,
11:16then you have a good plan to bring it
11:17back down to reasonable levels below
11:19your your sort of maximum targets.
11:21That's important with the banks banks
11:23and financial institutions and
11:24shareholders as well.
11:26Shareholders are not necessarily worried
11:28about the leverage as such
11:30as long as you keep your financial
11:32freedom.
11:32>> Mhm.
11:33>> It's more that the banks and financial
11:35institutions that get worried. Can you
11:37repay the loans?
11:37>> How do you keep
11:40an I will call it an ambitious CEO
11:43>> Yeah.
11:43>> who wants to get out of this as fast as
11:46possible. How do you keep them in check?
11:49I'm saying that in a very respectful
11:51way, obviously. Um because if you go
11:54over your maximum, you need to come
11:55back. But that means you have less to
11:56spend. How do you do that?
11:58>> Well, I think it's important again it's
11:59a relationship between CEO and CFO,
12:02which is very important that you trust
12:04each other.
12:04>> Mhm.
12:05>> And and and and you you you can work in
12:08synchrony together. And as you have a
12:09[clears throat] common target and both
12:11have the same understanding about the
12:12situation. I had never seen that as a
12:14problem myself. I think and for me
12:16that's very important have a good open
12:18relationship with my CEO.
12:20>> Okay.
12:20>> And I believe it's the same other way
12:22around.
12:23>> Yeah. Great.
12:23>> Another point point is that looking
12:25forward and thinking about the deal
12:27acquisitions, like I mentioned in this
12:29case that there was a fundamental
12:32on the on the market. And you need to
12:33think about the thesis against the
12:35structural threats. Don't go to the trap
12:38that this is just a cycle.
12:40Consider it, test it and and question
12:42it.
12:43And and uh
12:44also
12:46has sanity checks. You have to think why
12:48someone wants to sell the business. Why
12:49would you be a better owner than the
12:51current owner?
12:51>> Yeah.
12:52>> Is there something he he knows
12:54>> that you don't know? I don't [laughter]
12:55know.
12:56>> Just just to think.
12:57>> I need to
12:58>> Sometimes good reasons.
12:59>> Yeah.
12:59>> And and why people do it. They They make
13:01They make this strategic choice.
13:03>> But also the timing The timing of when
13:05they want to sell to you is also really
13:06critical.
13:06>> No no no, but then you have to again be
13:08sure that it fits to your own strategy,
13:10your strategic direction.
13:11>> Yeah.
13:12>> And quite often
13:13people are too opportunistic.
13:15You know, they say like something looks
13:17great. So you jump on it without
13:19thinking is it matching my strategy?
13:21>> Yeah.
13:21>> That's a I think important point that
13:22you don't get overly excited.
13:24>> Nice.
13:25>> And also value discipline when when you
13:26are buying something or selling. Be very
13:29clear on on on on your valuation
13:31expectation and target and stick to it.
13:33And if it goes beyond
13:36>> You need to walk away.
13:36>> Walk away, yes.
13:37This maximum. Maybe they come back to
13:39you after a while and [laughter] they
13:41realize that, okay, you called their
13:42bluff.
13:43>> Yes.
13:43>> And and and the same when you're
13:45selling.
13:45>> Yeah.
13:46>> Cuz otherwise you might not get the best
13:48value. So it's better to wait and see.
13:50>> Mhm.
13:51>> And we discussed also this communicate
13:54credibility, be transparent, build the
13:56trust with the banks, with the labor
13:58unions. Those are also important. I've
14:00not mentioned them earlier because you
14:01know that's your labor force.
14:02>> Yes.
14:02>> And they want to be paid. They want to
14:04get salaries. They want to have job
14:05security. So you need to be take care of
14:08your own people in the company as well.
14:10And banks and shareholders and and
14:13rating agencies if you're a rated
14:14company. The company I mentioned I I
14:16worked for, they was a rated company.
14:18And I can tell you rating comes down
14:20very fast
14:20>> Yeah.
14:21>> if you're not transparent. And even if
14:22you are, if the figures are not not not
14:24uh
14:25being fixed, but it takes long time to
14:27grow back up in to to investment grade.
14:30>> Okay.
14:30>> So it's it was it's it's a lot about
14:32communications. It's not only about
14:34tangible things. It's also about
14:35intangible things that you do in the
14:37totality, that how to get out of it and
14:39[clears throat] how to manage the
14:40situation.
14:41>> Fantastic. If you will sum this up, what
14:44is the most important thing? Is it the
14:46first one?
14:47>> Cash is king.
14:48>> Always.
14:48>> Always.
14:49>> As always. Thank you so much.
14:51>> That's a great pleasure. Thank you.
14:54>> What the CFO playbook shows us is that
14:56portfolio restructuring is not simply a
14:58transactional agenda.
15:00It's a capital allocation agenda. The
15:02CFO has to help define what belongs in
15:05the portfolio, what needs to improve,
15:07what should be exited, and what
15:09financial capacity is required to make
15:11that shift.
15:13But the real discipline is in the
15:14sequence because every strategic move
15:17has a cash impact, a risk profile, a
15:20timing issue, and a balance sheet
15:22consequence. This is why the CFO's role
15:25is so important to bring structure,
15:27challenge the logic, protect financial
15:29flexibility, and make sure the company
15:31can transform without weakening itself.
15:35Thank you again, Seppe, for sharing your
15:37insights with us. And ladies and
15:39gentlemen, thank you for watching this
15:41episode of the CFO Playbook. See you in
15:43the next episode. Thank you very much.
15:45>> [music]
15:48>> Next week on the CFO Playbook,
15:50>> [music]
15:50>> Philip de Waal, CFO of De Waal & Zoon
15:53Fastfood.
15:55>> Brought to you by Robert Walters, your
15:57global talent solutions [music]
15:59provider.

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