Episode Transcript
[00:00:03] Speaker A: Welcome to INA Insights, where prominent leaders and influencers shaping the industrial and industrial technology sector discuss topics that are critical for executives, boards and investors. INA Insights is brought to you by Ina AI, a firm focused on working with industrial companies to make them unrivaled. Segment of one leaders to learn more about Ina AI, please visit our website at www. Dot ina dot AI.
[00:00:40] Speaker B: Good morning everyone. Welcome to another episode of our Titanium economy podcast series hosted by Ina AI. Our guest today is Mister Andy Mattis.
Andy was most recently CEO of Clarence Laser. Current Laser is a global leader in materials, networking and lasers for the industrial, communications, electronics and instrumentation markets. While CEO Andy Triple quarterly operating margin, grew revenue by 24% between 2020 and 2022 and led the company through its sale to two six for $7 billion. Prior to serving as CEO of coherent Laser, Andy led Diebold as its president and CEO. Diebold specializes in the sale, manufacture, installation and service of self service transaction systems, point of sale terminals, physical security products and software related services. As CEO, Andy increased revenue at a 16% CAGR from 2013 to 2017 and led the $1.8 billion acquisition of Wincor Nixdorf.
Andy, welcome to our podcast. We're super excited to have you and I'm looking forward to hearing more about your journey about being a two time public CEO.
[00:01:58] Speaker C: Well, thanks Nina for having me. I'm excited to be on today.
[00:02:03] Speaker B: So just to kick off, in your past two roles, you led a manufacturer of financial hardware infrastructure as well as a manufacturer of cutting edge laser and optical systems. Can you describe what contributed to your success in these very different spaces?
[00:02:20] Speaker C: Well, first of all, they're probably not as different as you might think. I would put both companies into kind of like an advanced industry bucket. They both have a very strong hardware play, they both have a very strong service play and a software play in Deepaults case, more of a software play than incoherent. But both operate along the value chain, multiple levels of integration with the customer, and many ways to enhance the business. And both companies, when I joined them, had one thing in common. They were kind of stuck in the past.
Diebold was an ATM manufacturer that basically was trying to push boxes and they gave service away for free to sell more hardware. Needless to say, that's not very accretive to your p and l and coherent a fantastic laser company.
But the biggest claim to fame is the excimer laser. You need a coherent laser to manufacture an OLED display. So basically all our smartphones are enabled. The displays are enabled through coherent technology.
But that also means the company came off of a sugar high from back 2017 2018 when OLED was introduced, Korea Inc. Bought all these excimr laser systems. Company was at an all time high when it came to revenue share price, what have you not?
But it's a somewhat limited market. And once all the OLED manufacturers had enough equipment to produce the displays, there was not more of a market to be had. So we had to really dive into what do we do? Where do we grow, where do we focus next? And we spent a lot of time and energy doing that, and I'm sure we're going to talk about the how in a moment, but that's what I focused on and that's what made us successful in the end.
[00:04:29] Speaker B: This sounds like a challenging situation to walk into. When you made the transition, how did you focus on learning and understanding a new space to be an effective player in the new industry?
[00:04:41] Speaker C: Well, look, I always follow a simple process. First you got to stop, you got to look, and you got to listen, and you got to talk to everybody who's willing to talk to you. And I sure do, up and down the value chain, in the company, outside of the company.
And you talk with your customers, you talk with your suppliers, and usually, usually the company knows what the company needs to do.
You very rarely find a situation where the company is heading down a path. The numbers are bad and nobody has any idea what they should be doing. Usually the company knows whether they've done it is a different story.
The second thing that when you come in from the outside is, and I've learned that over the years, it's just you keep asking simple, tough questions, why don't we grow more?
Why does it cost so much? And you keep asking and asking, and the first response, as usual, well, you need to understand. And then you got to remind yourself that, no, you don't need to understand, because an investor doesn't have to understand. An investor just wants continuous improvement and steady growth. So what's stopping us? And the more you dig down and you have apply what I would refer to as a double click mentality.
Once you identified an area where the answers get squishy and you double click and you go to the next level of detail, eventually the numbers will confess the truth of where the company it is, where the strength of a company are and where the weaknesses are. And that's where you start with your turnaround, and then with your turnaround strategy.
There's also a very simple rule, and I forgot who gave us this quote, but I believe in it wholeheartedly. Is that the best way to make money is to stop losing money? That sounds super trivial, but in every company there are areas where you're not doing as well. Whether it's a true loss or whether it's just margin dilutive, that's beside the point. You can attack either one of them, but if you stop the bleeding, the rest of the organization will improve without you having to have any brilliant strategic thoughts of what to do next.
But you're already picking up some momentum, and that momentum will energize a team, and that will help with the conversation of what is it that you really want to do next?
[00:07:30] Speaker B: That makes sense. I've heard that sometimes, yeah, you just got to do the basics right. And not losing money is, I guess, the first step to making money. So you spoke about listening to all the different perspectives, understanding what needs to be done. But twice in your career you've led very successful transformations. Would love to double click into some of those. So at Diebold, you oversaw the acquisition of a large german competitor. Can you shed some light on the most challenging or the most rewarding parts of that experience?
[00:08:05] Speaker C: Well, buying an asset in Germany is a treat because german takeover laws are very, very unique. Diebold was a public listed company. Winkle Nikktsov was a public company. And to make things more interesting, there was not a single anchor shareholder to negotiate with. So we had to deal with a broad base of retail shareholders that we had to convince to tender their shares. To make matters more exciting, german takeover laws and us takeover laws. So the SEC and its equivalent in Germany, the Bafin, those rules aren't created to coexist in harmony, which may give you one example. In Germany, you must have certainty of funds when you put out an offer. If you do an equity deal in the US, if you go north of, I want to say it was 15%, you need shareholder approval. But in Germany you only have 90 days between offer and certainty of funds. And in the US you have 90 days to announce a shareholder vote. And you'll never get these things lined up coterminously. So the laws drive your financing structure and they drive your behavior. And again, in Germany, you need to reach what's called a 75% hurdle to have. And it's a horrible world to create a so called domination, profit and loss agreement. But that's important so that the mother company can tell the acquired company what to do. And you don't have to take that through a boardroom. And you have to deal with the minority shareholders all the time.
While these rules were created like so many rules by governments to protect the mom and pop shareholders at that point in time. In the process, the mom and pop shareholders have already all sold out their shares. And there's a cottage industry that thrives on nothing but blackmailing, acquiring company to pay more so that they can get to the 75% hurdle and eventually the 95% hurdle so you can do a squeeze out. And dealing with this whole cottage industry is a unique experience. Had I known upfront how complicated it is, I'm not quite sure whether we would have done the deal or whether we would have done the deal the way we did it. It takes up a lot of time and a lot of energy and all of that before you actually start with the heavy lifting, which is combining two companies.
[00:10:49] Speaker B: Andy, that sounds incredibly challenging. Just curious as someone moves up the ranks with a commercial or operating background, what you described is brand new. How do you go about learning how to deal with that? Do you lean on advisors? Is it something you're forced to pick up? How does that work?
[00:11:10] Speaker C: Well, again, there's a great quote out there that whenever you're in a complicated situation, you want to talk to an expert, but the only way that you develop expertise is by making mistakes. So basically you want to screw up and learn a lot in your life. That's the only way how you get there. But situations like that you cannot handle without help.
In our case, we use advisors in both deals. And the biggest challenge is both Diebold and coherent. Even more so, they're small or mid cap stocks, so your management bench is limited. I mean, really good people, but these people are already all working 24/7 very loyal people to the company. But that also means many folks have never seen anything but what the company is doing. It's challenging to get the bandwidth and it is important to get the intellectual input for the organization to truly get his arms wrapped around. What are the tasks, how to think about it and how to think outside of the box.
[00:12:32] Speaker B: Got it.
[00:12:32] Speaker C: Ed? Coherent.
[00:12:33] Speaker B: You actually sat at the other side of the table by overseeing the company's sale to 2.6.
How did your experience as a buyer inform your strategy in the sale process? What parts were new? What did you feel more confident about?
[00:12:51] Speaker C: Well, let me start out with, the most difficult part is. The most difficult part is how do you manage a company after you announce the deal? Until you close a deal? That was complete, uncharted territory for me. So how to be an effective lame duck president and CEO? Because you still have to deliver your results. You still have to.
You're responsible for the company that you're running until the day that you're not. You must absolutely make sure that you don't trigger a Mac clause, a material adverse change clause. So you want to make sure you stay on the trajectory of the business case that is the underlying foundation for the deal and the merger agreements.
And how do you do that with an organization that's already looking at the new management team and really wants to be part of the go forward conversation? So that's the toughest thing to do.
The learnings.
I think the most important learning is you need to understand what is the type of deal that I'm really doing.
And in my mind there's four type of m and a deals and whatever logos you give to them. The first is the company that's being acquired has a certain skill set, product set, ip set, that's very unique and that the acquiring company does not have.
Second type of the deal is a scale deal where you acquire something and you want to leverage the acquiring company's scale to the p and l of the target.
Third type of deal is you co create two new companies. And fourth type of deal of course is you do a reverse merger.
In the Diebold Wincor acquisition, we were not crisp enough around that and that was my mistake. And that falls in the category of you make mistakes and you learn. We went in and thought it's a you lever, the acquiring company strength and it's a scale deal, whereas the target wanted to turn it very much into a co create a new co type of situation. And that led to quite a lot of misunderstandings in the coherent deal.
The deal structure was very clear. We were an asset that the acquiring company 26 did not have and therefore it was important to protect the asset, make sure the benefits, the IP, the people remain with the company while still getting, of course, cost synergies out of a deal.
The other thing that I've learned is, and again, in my other large acquisition, that was not the case in this situation. It was very clear that as a CEO I would leave right after signing the deal.
And while that might hurt your ego for a moment, it really, really helps because my job mentally changed. So I was not only in charge of running the company until the day of closing, but I also basically became the advisor to combined co CEO and I had no more dog in that hunt, which meant I could speak up very freely. And Chuck Matera, who is the CEO of 26 at the time, a fantastic executive.
Chuck and I spent hours talking with each other about strength of the company assets of the assets the company have, the people, the talent, where is it distributed? What would I have done had we remained a standalone company? What are the things that I felt are things he needed to pay attention to to protect the company and protect the asset. And so this combination of knowing what type of a deal it is and having an outgoing CEO who was willing and able to help combine company have the best day one experience possible. That to me is a very, very successful formula, and it worked extremely well for our shareholders, and I think it continues to work very well for the new shareholders of the new yearat.
[00:17:38] Speaker B: Yeah, sounds like a very thoughtful reflection of what went well, what didn't go well, and just a situation.
You mentioned working closely with the two six CEO. Two six ultimately adopted the coherent brand.
You mentioned the four types of m and a deals. What do you think is the motivation around when the acquirer adopts the name of the acquiring?
[00:18:07] Speaker C: That's a rare exception, but the name matters. Let me just give you a few examples. Let me use them in industries that I'm not an expert on, so I'm just an observer. But you can see it very clearly. When United acquired Continental, they wanted to co create a company, so they kept the united name and they combined it with the Continental logo in the US Airways, American Airways deal. US Airways was probably the stronger company from a balance sheet. If you think back to our two companies, we had the benefit of two six is the name. You really have to go back to your old chemistry books and look at the periodic table to find two six in there.
Very few financial analysts usually do that. So it's not a name that is a household name, coherent as this is the definition of what a laser is bundling. Coherent light had a fantastic brand. It made a lot of sense, but more importantly, it helped the archetype of the deal, which is it helped chuck to protect the asset. I think I cannot give you a hard number, but gut feeling. He probably shaved at least a year, year and a half off on the integration scale because he had the buy in of the people of the acquired companies. So he spent $7 billion and he basically made sure those $7 billion are not voting with their feet and leaving the organization. As a matter of fact, if you look at it, turnover, the company is extremely low and why? I have nothing to do with the business anymore. I do know that I'm not getting a lot of calls for references for my old teammates who are trying to find a new job. Factor matters. Most of them are in very elevated high positions at combined company and are doing extremely well. So getting this thing right is an important step. You really want to think this thing through. And depending on the type of deal, you decide what you want to do with a name, you either use the acquirer or the target or you hyphenate. But these things all have to match together. I cannot overstate how important culture is to a successful integration. I think Peter Drucker said many years ago that culture eats strategy for breakfast any day of the week. Culture eats the success of an m and a day any day of the week. And the more you get your arms around the culture, the higher the likelihood that you get anywhere close to the business cases that you were contemplating before you pulled the trigger.
[00:21:08] Speaker B: Yeah, I think it also is testament to all of the work you put in there to build that brand, build that culture. At Ina's recent RPT 30 conference, you discussed eight key elements of a successful transformation. Some of them were familiar, understanding people, processes, systems with. Some of them were more unique, such as creating a need and a sense for change. Could you share a little bit about your perspective on the importance of creating a need and sense for change and that blue sky transformation opportunity versus say, reasonably unreasonable targets?
[00:21:45] Speaker C: The laser industry or the photonics industry is a niche market.
It's a fantastic technology.
It's technology that enables most of the technical advancements that we enjoy today. It's a technology that enables the chips and everything that we need to build AI on, or that you need for EV's.
But it's a small set of companies and it's not a new technology. Lasers have been around for the last 40, 50 years, so.
And you notice that when you join an industry and you join a company, the first thing that people will tell you is, well, this is the way it's done in our industry.
Well, it's interesting, but that's not fascinating. They also tell you is, and every time somebody tells you that, the sentence starts with you need to understand. By the way, whenever a CEO tells you you need to understand short the stock, you will always make a profit, because no, you don't need to understand, but you don't know what you don't know. And if you deal with companies like a coherent or Diebold, that has huge longevity, I mean, average time of the employees with a company at Coherent was more than twelve years. It's fantastic. That means many people have never seen anything other than coherent in all their lives. Never seen anything other than the laser industry in all their life. So when I joined the company, when the board asked me to transform the company, how do you get the buy in from the people?
Because you can only drive a successful transformation if the people agree that you need to transform. So what we did is we did an organizational health survey, surveyed all our 5000 employees. We had, I forgot the number. We had about two thirds of the folks coming back and giving us responses. It was a mix of closed questions and open questions. I spent days reading through the open answers and you get a really good sense of where's the company? Very strong. To give you an example, coherent had a customer satisfaction index that was higher than anything I've ever seen in my 40 years of doing business was off the charts. But even inside of the company, we knew that our customers don't like doing business with us because our invoices were like the hardest thing to understand on planet Earth. And when I spoke to the customers, they all said, listen, we love you, but we hate your invoices. And not that we don't pay, we just don't understand them. So you get pointed into the right directions. And the minute you start to comparing yourselves not just with the subset of the universe of a photonics industry, of half a dozen or a dozen companies, but you compare yourself with, let's say the Fortune 1000, then you'll find areas where you're clearly in the top quartile and those are your areas of strength, but you also find areas where you're like in a third quartile, maybe fourth quartile. And when you then reflect on this as a management team, as a leadership team, you usually get this aha. Moment where people are saying, well, we knew we weren't the greatest or we didn't know we were that bad. And that really creates this need for change, and it creates a buy in. And I've used this successfully many times in my career. And the more people understand why and the more people say, look, when we do something in area x where we really trail the broader technology market, then you're onto something and then you start to get people engaged and then you get teams going and you create all this groundswell that you need for a successful transformation.
[00:25:48] Speaker B: I completely understand. I feel like when you've been at a place for a while, you kind of lose sense of where you stand sometimes as well, compared to everybody else. I'm just curious.
You also have spoken a little bit about the blue sky transformation opportunity. I would love to hear your thoughts on that.
[00:26:08] Speaker C: By the way, this is where you need outside help.
You gotta play PE or activist to yourself, if you take any activist playbook you wanna read, they're usually brutal. The one that I came across the other day was Elliot going after Crown Castle.
The playbook was called rebuilding or recreating the castle. And you read this and you just. I mean, you need a stiff drink when you read this thing. So you got to say, okay, if we were a really mean shareholder, how would we view ourselves and what would the actions be that we would take?
And if you get a partner that could help you run through. If we were AP, what would we do to ourselves?
Type of scenario, you end up with a number that is absolutely mind blowing, and it'll top anything that you as a CEO believe is possible.
Now, you can make a lot of asterisks to it and say, well, this and that and that, but that's why it's called a blue sky scenario. Everything going, you can do everything. You end up with a really, really, really big number.
That number you digest and you don't tell that number to anybody, definitely not to your board, and even, under no circumstances, to your shareholders.
And then you discount that number, I don't know, take 30% off. It doesn't matter, whatever you feel comfortable with.
And then you say, okay, this is then my best case number.
And then you hedge that a little bit more.
And that's what I refer to as a reasonably unreasonable number. So that's, I don't know, maybe it's 60%, maybe it's half of the original disguise the limit type of number, but that's a number you start squawking about. That's a number that you tell the board. That's a number you tell your management team. That's the number you want to really stretch the company to. It's still not the number you give the street.
You want to hedge that a little more for the street to make sure that you can deliver. And you do a beat and raise type of thing, but super important to get this thing right. And having this blue sky number in your mental back pocket helps the CEO to navigate through the conversation. When the whole company tells you it can't be done, this isn't possible.
And you can say to yourself, well, you should hear this conversation. Had I put the real number on the table, all hell would have broken loose in the organization. So you have. That gives you very good bearing for what's truly possible. What's the size of the price? And then you rallied the troops around this reasonably unreasonable number, or good stretch, or whatever you want to call it, and then you go after it and you don't waiver.
[00:29:23] Speaker B: Yeah, I think what you mentioned around putting that analytical lens on yourself or whatever is one everyone can take something away from. Want to hear your perspective on how your role in that has changed. So you now sit, or have sat on the board of several cutting edge technology companies. You've moved more from the operator to being on the board for these ams. Osram Kohu, what are some of the ways that you create value for these companies in a board advisory role? What questions do they seek your guidance on?
[00:30:00] Speaker C: It goes back to you.
You try to influence through questions.
The role of a board is to ask the simple, hard questions, and the role of a board is to ask the questions that a shareholder would ask.
How come the industry is growing at x and we're only growing at y? How come other companies are yielding 20% operating margins and we are hovering at wherever and biggest task of a board member is ask these simple questions and bring a broader perspective into the conversation. Because depending on where you are, and especially if you have a CEO who's been in the chair for a long period of time, they're usually in the chair for a long period of time because they've done something very right and you don't want to stop that. But by the same token, you want to challenge them, entice them, get them mentally involved in things where you say, well, look, while you've done everything fantastic over here, have we really checked all the boxes? And nobody is perfect. No company is perfect. So that's how you find areas for improvement, where they seek my help. Well, having. Having sat in the chair and having the operational background that I have, in many cases, it's just the read on where you are. Because even if you have the best management and being a CEO is a lonesome job and you need to. Sometimes you just need to ask somebody like, hey, what do you think it's going to work out? What should I be doing? And just having been there and done it and seen the movie maybe once or twice before, you can help people navigate through a situation. And it may not be the industry that you were in yourself, but pattern recognition is a good thing. And if I can contribute in situations like that, that's something that I enjoy doing.
[00:32:28] Speaker B: That sounds. I feel like you'd be a great asset on every board that you're on. Reflecting on your 40 year career journey, was there a pivotal moment that significantly shaped your approach to leading companies? You mentioned it's a lonely job at the top.
[00:32:46] Speaker C: There's two moments that have shaped my career more than anything. So I spent my 1st 20 years of my life with Siemens, a very large Germany based electrical conglomerate. And I was CEO of Siemens Communications when I left. And when Mark heard who became the, he was just the CEO of Hewlett Packard. He recruited me to become his chief sales officer and it was a huge step for me to leave Germany and a german company and everything behind and go to the west coast and truly work for a west coast based management team. But the decisive moment was I was basically in charge of organic growth for Mark.
And we need to add, we were talking, I don't know, adding about 1400 salespeople or something to this huge HP sales force. And he looked at me and says, andy, you're talking $0.03 EPs.
I must have looked at him like a deer in a headlight. I had absolutely no clue how to translate an operational activity into EPs. And just because you don't learn that in Germany, in Germany you believe in process and process optimization and if you run the Linux process, you can't avoid generating more profits. Mark was the other way around. Mark was looking for EPs improvement quarter over quarter and he conjugated everything backwards from there. So the mere fact of how do you think in those terms, super, super important.
Second pivotal moment that I had in my life is when I was working with VC's and pes in the valley and one of my clients was a young company about to go public and we're sitting in a meeting and I forgot what the topic was all about and the CFO walks into the room and says, guys, I need to interrupt you, we have a small problem.
I don't know how to make payroll next week.
That's not good. And that's something that very, very few operational executives ever learn. As a matter of fact when you work for a large company, work for the likes of Youlet Packard, I mean, money is there, it's kind of like, what do you mean? Power comes from the socket and the wall, right? So the mere fact on how do you manage a packet, you pay your bills, you pay your, you do your payroll, super, super, super important. And those two moments shaped my thinking more than anything on the broadness of a p and l and a balance sheet that you need to be able to understand in order to run a company successfully. Got it.
[00:35:42] Speaker B: Andy, I feel like through this conversation the last 30 minutes I think I've learned a lot. One coming into a situation and just looking at it with an objective lens to really putting that critical eye and setting a big target for yourself. And three, just being a little open minded, how you think through things. Different cultures have very different approaches to things.
I really think everyone has something to take away from this and I really appreciate your time today. Thank you so much.
[00:36:15] Speaker C: Thank you very much for having me. It was a true pleasure.
[00:36:24] Speaker A: Thanks for listening to Ina Insights. Please visit Ina AI for more podcasts, publications, and events on developments shaping the industrial and industrial technology sector.
