[00:00:03] Speaker A: Welcome to Fernway Insights, where prominent leaders and influencers shaping the industrial and industrial tech sector discuss topics that are critical for executives, boards and investors. Fernway Insights is brought to you by Fernway Group, a firm focused on working with industrial companies to make them unrivaled. Segment of one leaders to learn more about Fernway Group, please visit our
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[00:00:37] Speaker B: Hi everyone, this is Paulo Baldesi, senior vice president of Fernwe Group. Welcome to another exciting episode of the Fernwe Insights podcast. Today we will talk about transformation in industrials and our guest is Mister Rastowicz, VP and CFO at Columbus McKinnon, a role he has held since 2011. Prior to Columbus McKinnon, he was a vp of finance and corporate treasure momentiv performance materials. He has also spent 20 years in various financial management positions for PPG Industries, a Fortune 200 company including group CFO for the Glass, fiberglass and chemicals businesses CFO for transitions, optical and assistant treasurer and global credit director. Mister Rastowicz has been with Columbus McKinnon for a little ten years now and he has played a pivotal role in the company's great transformations and growth story. And with this, I welcome Mister Rastowicz to our podcast. Greg, welcome to our podcast. We're super happy to have you here today.
[00:01:41] Speaker C: Thank you, Paolo. I'm very excited to share the story of Columbus McKinnon and the great transformation we're undergoing.
[00:01:46] Speaker B: Fantastic. So maybe let's start by talking about Columbus McKinnon for a second and for the benefits of our listeners. Tell us a bit about the company and what it does.
[00:01:57] Speaker C: Sure. So Columbus McKinnon is a leading worldwide designer, manufacturer and marketer of intelligent motion solutions that move the world forward and improve lives. So we help our customers by efficiently and ergonomically conveying, lifting, positioning and securing materials. The company's key offerings include manual and automated lifting solutions, precision conveying solutions, and linear motion solutions for intelligent material handling our products and services increase safety, productivity and uptime for our customers operations. So we are the number one us hoist provider and the number two global hoist company in size. And we're also the market leader in the north american precision conveyance market. So we participate in various end markets and we're seeing good growth in many of these post pandemic. These would include the aerospace industry, where we're starting to see an increase in production rates for narrow body commercial aircraft as well as strong demand for the business jet industry. We participate in the automotive industry and we're seeing good growth of electric vehicles, which is driving most of the expansion. We are the leader in explosion protected hoist, and so we have a big presence in energy and materials processing. E commerce is actually another segment we participate in through our precision conveyance business, and that's growing quite rapidly, as you can imagine, as we're all seeing significant increases in the amount of packages that are being delivered to our homes. Food and beverage is another key market for us, as well as life sciences, where we work with a number of the pharmaceutical companies in building out capacity for direct delivery of prescriptions to patients and customizable designs built for precision speed and to FDA and industry standards for clean room certifications.
So what's interesting about Columbus McKinnon is we are in the middle of a transformation from a legacy cyclical industrial company to a top tier intelligent motion company. We think we're uniquely matched for this moment in the global economy. The products we are bringing to market today are addressing the most pressing issues of the economy. So we're into the third year of our pandemic, which has greatly changed all of our lives. We've seen the great resignation in an unprecedented shortage of workers, especially in the US. We've seen explosive growth in e commerce. We also have seen an increase in workplace safety requirements, as well as many companies in the pharmaceutical and food and beverage industry moving to a direct to consumer model. So we also play an important, vital role in people's lives. So our specially conveying solutions transport hundreds of vials of Covid-19 vaccines per minute with the precision required by major pharmaceutical companies. In addition, our products move packages on automated mobile robots across warehouses for the largest retailers in the world.
[00:04:49] Speaker B: Fantastic, Greg. And you mentioned how Covid has been, in a way changing the dynamics at Columbus. McKinnon, you've touched upon some of this, but can you just pinpoint on some of the opportunities and also the challenges, though, that the pandemic has brought to Columbus?
[00:05:05] Speaker C: Yeah, so we first experienced the pandemic like most companies, in March of 2020, we saw a sudden and significant decline in our business.
As a result, we implemented plans to ensure that we were both earnings and cash flow positive in 2021. What was interesting, at the same time, we were in the middle of a CEO search. So we were deemed an essential business and we continued to operate throughout while dealing with a great level of uncertainty and fear. I am grateful and proud of the many Columbus McKinnon associates who went above and beyond during that period. Our people made a huge difference. So Covid and the great resignation has increased opportunities for automation as manufacturers are impacted by labor shortages, social distancing requirements and onshoring. We've also seen an increase in business from the e commerce industry, where some of the leading companies are deploying our precision conveyors. More recently, we faced supply chain challenges, especially with motors, castings and electrical components. But we've adapted and continue to perform daily triage with suppliers to ensure that we receive as much of what we have ordered as possible.
[00:06:12] Speaker B: And just tell us a bit more about I mean, imagine, as you said at the beginning of the pandemic, you are also in the middle of a SEO surge. How difficult has been keeping the focus on, on this corporate plan, on some of the major strategic initiatives you are in the middle of still some restructuring initiatives and growth, the blueprint for Growth program.
Tell us a bit about that.
[00:06:36] Speaker C: So our blueprint for growth 2.0 is what we coined our strategy and it's really an ambitious transformational strategy. So it has been challenging to advance some parts of it. But we are finding ways to overcome those challenges and more importantly, we're seeing the strategy take root and succeed. For instance, as part of our transformation, we completed the largest acquisition in Columbus McKinnon's history, which was really a platform acquisition in the precision conveyance space. We also had to finance this acquisition with both equity and debt, and we did all of that successfully with the team working remotely, talking a little bit.
[00:07:12] Speaker B: About some of the additional trends. Regardless of the pandemic, we have seen a big push in automations in the material handling space. How has this changed dynamics in the market from your point of view? And how has Columbus McKinnon responded to this trend?
[00:07:28] Speaker C: Yeah, so we think the automation trend is going to continue in material handling. Given the great resignation and the desire to make workplaces safer, our customers are looking for solutions that enhance safety and productivity in their factories and provide better uptime. So we have been investing in our Intelli crane suite of products to add features that make our products smarteen. So we are leveraging a company we bought in 2015 called Magnetek, which is the us market share leader in drives and controls for material handling. So we provide solutions. The market values, such as crane systems that stay clear of no fly zones, properly pick loads, have anti sway features, and provide diagnostics to ensure preventive maintenance is done prior to a systems failure. With the investments we've made in precision conveyance, we're serving growing market demand in e commerce, food and beverage, and life sciences.
[00:08:21] Speaker B: Your product span across multiple end markets, chemicals, food processing, aerospace, automotive, pulp and paper, just to name a few. You've been at the company for ten years. Which of this has proven to be the most cyclical, and which ones? Instead, you've witnessed to be the most resilient to downturns.
[00:08:41] Speaker C: So when the pandemic first hit, the markets most impacted were automotive and entertainment. In the automotive vertical, assembly plan shut down and model changeover ceased. Fortunately, that market has recovered quickly and is now in a position where demand for new vehicles far exceeds supply. In our factory that supplies a number of the automotive factories, we essentially laid off the entire factory except for four people. And so that very quickly did ramp up over the next several months as things improved. Another vertical that I'd call out is we did experience a shutdown in the entertainment market as live shows and concerts were canceled. That market began to rebound last fall, but it has still not yet returned to pre pandemic levels. So what we've done is we've refocused our company on faster growing markets. So the e commerce market, food and beverage and life sciences have been really the most resilient markets for us.
[00:09:42] Speaker B: Now, looking ahead, thinking about the next five to ten years, where do you think the material handling industry is headed?
What are some of the major trends, threats, and opportunities that you expect to see?
[00:09:55] Speaker C: Sure. So we think the trend of automation is going to accelerate and will be a megatrend for the next decade. This increase in demand will create significant opportunities for Columbus McKinnon as markets need more smart, precise movement solutions.
The threats we are seeing include other companies looking to grow through acquisitions, driving up multiples, and further consolidating the industry.
[00:10:18] Speaker B: Very interesting. Now, I would love to switch a bit gears and talk a little bit about your personal journey. Greg, you've been on an amazing ride so far, Columbus, McKinnon. And prior, when you started your career, did you imagine that one day you will become the CFO of such a successful company?
[00:10:33] Speaker C: So I began my career as a CPA with one of the big eight accounting firms, which is now down to the big four. And that was almost 40 years ago. So I always knew I wanted to go to business school, but didn't envision that the road I traveled would lead to me serving as CFO of a public company and one that happens to be headquartered in my hometown. So it's been very interesting after living away for 27 years, moving in essence, back home, working to really improve a local company that's got a great Runway. And we're very confident in that we'll become a leader in precision conveyance and the transformation that we're undertaking.
[00:11:13] Speaker B: I've always imagined the CFO role to be of a public company to be a very tough one. Apart from the day to day managing the cash flow, managing the company, you sit on a hot seat every quarter during the earning seasons with many analysts wanted to grill you. Tell us a bit about some of the challenges, concern that you have in this role for ten years.
[00:11:35] Speaker C: So the biggest challenges that I face are really twofold. First, it's about identifying and creating value for our shareholders, and we do that by ensuring that our capital allocation is sound and that we're focused on the right strategic initiatives. Second, it's really about building a good team, one that you trust. And the two most important meetings I have each year is one where we review our talent and one where we develop our goals. And I firmly believe that if I have the right people and the right jobs with the right objectives for the next year, then I know the right things will happen.
[00:12:07] Speaker B: You guys have been very active in the m and a space. Tell us a bit about your own experiences and especially how your involvement as a CFO shaped out during the different stages. Thinking about through the full journey from setting the m and a strategy, identifying targets, deal execution, integration on some of those deals.
[00:12:29] Speaker C: Yeah, so I guess I would start out saying that you can't get too enamored with any acquisition. I had a wise banker once, many years ago from Goldman Sachs. Tell me sometimes the best deals are the ones that don't happen.
But let me touch on the last two acquisitions that we did complete. So in 2017, we closed on an acquisition where we bought a business from our number one competitor, the global leader, who is forced to sell for antitrust reasons. And this was the largest deal done to date for Columbus McKinnon. And it was incredibly complex as it was a carve out, and they kept their books on an IFRS basis. So we needed to complete a complex financing that included a bridge loan, a pipe equity offering, and a permanent term loan b and then, given the materiality, we had to file the required SEC combined financial statements. We also had to get the company Sox compliant in one year. And just given the timing of the acquisition closing January 31, in essence, we had two months to get rolling on the Sox compliant aspect to it. And because we issued a pipe to finance it, we also had to register the equity offering. And given that it was a foreign denominated asset, we executed cross currency swaps as well as interest rate swaps to hedge various financial risks. So we committed to the deal being accretive in its first full year which it was. So this acquisition was really the beginning for the blueprint for growth strategy. So the second acquisition is the one that I'll touch on is the one we completed in April of last year to buy Dorner manufacturing. And it's been a great acquisition for us because it represents Columbus McKinnon's strategic transformation with a new platform and precision conveyance. While Dorner is predominantly a us company, we had to refinance the balance sheet with a bridge loan, an equity follow on offering and another term loan b, all while dealing with a pandemic. It has been great working with the Dorner team as we've accomplished all of this in a very short period of time.
[00:14:31] Speaker B: Fantastic. Greg, we'd like to switch topic for now and really think about Columbus McKinnon a bit as a case study for other industrial companies. Right. And before we do that at Fernway, we subscribe to what we call a three level methodology to drive for returns for industrials. And the three levels being accelerated performance transformation, upgrading valuations to improve governance, and building an m and a platform to drive growth. And think about Columbus McKinley has been really case studies across these three levels. And so with that in mind, what would your advice be to other industrial companies who are looking to follow a similar path?
[00:15:15] Speaker C: Sure. So I think it starts with an honest assessment of your existing business. At Columbus McKinnon, we had a great position in material handling, but to drive multiple expansions, we needed to increase the profitability of the business and drive growth. For us, the 80 20 process was key to thinking about things differently. We also decided that we needed to jumpstart our m and a process to build a mix of better businesses. Through programmatic m and a, we completed an assessment of where we might play and then looked at industries that made sense for us to invest in. So this is how we determined that precision conveyance made sense for Columbus McKinnon. At the same time, it's very important from a governance perspective to be plugged in and working with your board. And in our case, we've got a great experience board that have done numerous transformations along the way. And so it's important to leverage the collective know how of your company's board in this process.
[00:16:11] Speaker B: Going back to the pandemic for a second, one of the key challenges for businesses, especially industrial, has been managing the cash flow. And at Columbus McCann, you were able not only to navigate those times, but you were able to post a solid free cash flow performance despite a drop in revenue. While all the sector was going through this slow down what are some of the levers you pull to make that happen?
[00:16:39] Speaker C: Sure. So job number one for us was to generate positive cash flow. So we made decisions based on exactly that. As we restructured the business, we considered the cash costs versus the cash savings in the first year. We used strategy deployment to focus on the three main elements of working capital. I'll touch a little bit more on that. So what we did there is we took our best and brightest people and had them lead the teams at tasked with improving our dsos or days sales outstanding. Our dpos or days payable outstanding, and inventory turns. So we focused on long term structural changes that would outlive the pandemic. We also reduced our capex to half of what we normally spend. And we still allowed for growth related capex, but only for projects with a very fast payback.
[00:17:29] Speaker B: That sounds a great recipe, Greg. Going back to the m and a journey, Columbus McKinnon has a strong record of creating value through that not only acquired four companies over the last few years, but that has also divested three low profitability businesses over the last five years or so. Driving programmatic m and A, however, is something that a lot of industrial companies aim to do, but they don't do that so successfully. So could you share a bit what was the secret sauce and how Columbus McKinnon has been able to do this so successfully?
[00:18:03] Speaker C: Yeah, it really starts with our business system. So for m and A, we have built out a list of processes that are important to be very successful with m and A. And so we're building the muscle and the processes to value and integrate acquisitions as well as to finance them. We're also constantly prospecting for potential targets. So I would say those are really the key factors. We utilize a scoring system them to grade potential deals and involve select business leaders to get their opinion of revenue and cost synergies, which are really important for the deals that we do. And then I'd also like to mention our board has been very supportive in this area and we've been able to tap into their collective wisdom as well.
[00:18:44] Speaker B: You mentioned a few times during this call the role that some of the brightest people in the company have played. Right. And that triggers to another theme around talented. We've observed that for industrial company of this size, around the $1 billion, more or less, it's definitely challenging for those companies to attract top notch talent. And maybe this is specifically true in the industrials. How have you addressed that? And based on that, what would your advice be to some of your peers?
[00:19:17] Speaker C: Sure. So when I joined Columbus McKinnon, I did a talent assessment of my finance team and I had a limited number of what I would call high potential relative to say a big Fortune 200 company that you mentioned that I work for. And what I told our board was the handful of people that I had that were high potentials would be high potentials in any company out there. They were that good. The problem was that I didn't have enough of them. So when you're a small organization, you can't afford to miss on filling key roles. If you do, it'll set you back for years. So it's important to have good leaders who have an eye for talented. So we use various assessment as well as behavior based interviewing to determine if the candidate has the right character traits, work ethic and values that we're looking for.
And then once you do have them, it's important that you keep them and you provide them developmental opportunities to grow in their careers.
[00:20:13] Speaker B: Fantastic. Greg. That's very, very insightful. In closing, what would be your advice to CFO of companies that are looking to embark on a transformation journey like the one you had, you know, thinking going through the journey of implementing structure initiatives, growing, running programmatic m and a?
[00:20:32] Speaker C: Sure. So I think it starts with envisioning the future. I like to use a Yogi Berra quote, the famous Yankee catcher, and his quote was, if you don't know where you're going, you might end up somewhere else. So it's important to know where you are and where you're headed. I think it's also important to build a sound strategy that utilizes the collective wisdom of the larger organization. No one person should own strategy. It should be a synergistic creation that happens organically over time.
[00:21:01] Speaker B: Such a great way to end our podcast. Greg, it's been a real pleasure to have you here. Thank you for sharing your journey, your personal journey, and also what you guys have done at Columbus McKinnon. This has been extremely insightful. So thank you very much.
[00:21:16] Speaker C: Thank you, Paolo.
[00:21:23] Speaker A: Thanks for listening to Fernway Insights. Please visit fernway.com for more podcasts, publications and events on developments shaping the industrial and industrial tech sector.
