From collapsing roofs to late-night phone calls, a veteran automotive executive shares his stories of turning around companies for private equity firms.
Richard F. Dauch, President and CEO of Accuride, speaking in Traverse City earlier this month.
Accuride President and CEO Richard Dauch knows his way around struggling automotive suppliers. The first operation he helped turn around was a real doozy: General Motors’ final drive and forging business, American Axle. Bought by his father and two other investors in 1994, it had 11 plants, a workforce of 10,000, and 3,500 open grievances “from our friends at the UAW” that dated back two to three years.
Once American Axle became a stand-alone company, eight of the inherited plants ranked in the bottom 10 GM suppliers.
“I spent about every quarter in front of the GM purchasing team answering why we couldn’t build quality products,” Dauch said. “And my pat answer always was, “Because you didn’t’ invest in the business for 25 years.”
Dauch, who’s lead or helped lead three supplier restructurings, was part of a speakers' panel on the topic at the Center for Automotive Research's Management Briefing Seminars in early August. The other speakers, an analyst for a private equity firm and a financial advisor, talked about what the future held for mergers and acquisitions in the automotive supply chain.
Dauch, however, talked about giving investors the straight talk about poor plant conditions, the shambling plant roof he once walked across to see if it would hold, the people he’s had to lay off, the clean balance sheet he’s seen drop to over a billion dollars in debt in 18 months during the GM and Chrysler bankruptcies. And the late-night phone calls, including one to the head of a private equity group to decide whether to file for bankruptcy or buy a little more time.
In addition to American Axle, Dauch led the restructuring of fastening maker Acument and wheel manufacturer Accuride, a legacy company of Firestone that started making wheels for the auto industry in 1906. At one time, Accuride manufactured 80% of all the steel wheels in North American heavy trucks.
“All started as a private company, as a non-core asset that had been poorly invested in by their parent company,” he told the crowd. “And all were taken out of those parent companies by private equity.”
Dauch shared these restructuring lessons learned:
1. Not all private equity firms are created equal. Know your partners. There are some who will help you build the company. And some will slash and sell the company. There are some advisers and there are some hands-on operators. If you’re going to be the CEO, know if you’re going to be getting advised, or helped steering the wheel. They only last for two to four years typically; they get in and out pretty quickly.
2. Do your diligence up front, both on the asset you’re going to fix and the private equity firm you’re going to fix it with. Make sure you have a line of vision; plan to spend the money to fix it. You must have the customers lined up; the unions lined up. You’ve got to understand the competition against you. Is there stability in the industry up or down?
3. Private vs. public restructuring. If you have a choice, restructure in private. As my dad used to say, get the hard, heavy lifting done in the dark … closing plants, laying off people, buying up properties, take up restructuring charges. Leave that private.
4. Some things can’t be fixed. You’ve got to close it or sell it. You’ve got to be open about it. I take great pride in the fact that I’ve been able to save quite a few plants in North America and around the world. I also take great pride in those that I couldn’t. I stood in front of every member of the workforce and told them why they were being closed, and treated them with dignity as they closed down.
5. In management you only have leverage twice. When you’re being hired to run the business or they’re buying the business. Negotiate iron-clad agreements and a plan to fix it. And when the private equity guys go to sell it, you have a little leverage because they need you to make sure you can help sell it to the next owners of the business.