Ron Domanico, Executive VP and CFO, Brink's

Well, Joe asked if I wanted to speak to this group and I said I'd love to. It's a lot of fun. And then the subject: what are you going to talk about? Well, I could talk about a lot of things. I could talk about race, but I do that every day. I was in New York last week at an ideal road show talking to investors. And the company's doing great. It's doing better than it's ever had. We had a record last year. We had a record first quarter. Nobody notices. They think cash was dying and Covid killed it, and just the opposite is true. But who has more than $100 on them right now? Cash? Raise your hand. Safes are part of the problems. Okay, thanks Hollis. No, unfortunately, people who live at the margin of society during times like this lose access to debit and credit and have to rely on cash. And because of that, they rely on Brink's, the largest global cash management company by far, more than two times bigger than our competitors. Nevertheless, we are developing new services and systems. We're evolving with the payment world, and we are now trying to make cash as easy for retailers to accept as debit and credit. More on that later. But that's not why I'm here. I went through my career and picked several things that were eye openers to me. Starting my first job at Kraft Foods in Chicago, I was the manager of finance for research and development. So I had an MBA in finance, and I walked into an organization where I was the least educated person in the entire group. And I would go sit in with these PhDs who are inventing new food products and listened to their inventions. And right after the meeting, I would kill their project. And I did that in about 90% of the meetings. So they awarded me a doctorate. They call me Dr. Death because I had to evaluate the economic viability of their project, not the scientific viability of their project. We had a team that was working for five years to convert the byproduct from making cheese, and Kraft made a lot of that, into something the world could use. So they were converting whey into vitamin C. They'd been working on it for five years. And so I said, well, that's cool. And I started as an undergraduate in pre-med, so I understood the chemistry and the biology and mutating enzymes and all that stuff to eat away and poop out vitamin C is the layman explanation. And they were getting quite a way along. I said, you know, you guys are about a year away from perfecting this. So how much vitamin C can we make with just the whey Kraft produces? I don't know. And what would it cost for a bottle of vitamin C if you were successful? I don't know. So they came back, took them a couple days, and they said, well, we could make, just with our own whey, enough vitamin C to have 100 bottles for every person on the planet every year. I said, and the cost would be about $20 a bottle, and you get it in the store for like $2. And I said, you didn't ask this question five years ago when you started? I mean, what would happen if you succeeded? You would fail. Okay. And so I killed that one too. And that made headlines at Kraft. My big breakthrough, however, came talking to all the scientists. And I said, what do you guys do here? They said, well, we invent stuff, and then we give it over to marketing to see if they can sell it. And I said, well, why don't you go to marketing and see what they can sell and see if you can make it? They never thought about that. I mean, I say it took like the lowest educated person in the room to ask a pretty basic question, just to flip a dynamic on its head. And it changed everything. So marketing said, you know, why didn't you come up with microwavable cheese that you could pour right on nachos? And it's like, was already Cheese Whiz. You just open the lid and put it in the microwave. And it tripled the sales of that cheese in a year. So that was the first thing I wanted to share. My career progressed from R&D. I went to the venture group. We did acquisitions, acquired Lender's Bagels and Celestial Seasonings tea, All-American Gourmet, and maybe a dozen other companies. And then I moved to corporate, where I learned all the corporate stuff. And while I was there, got to meet all the big wigs, the board, and everything. And right after that, I moved to international. And that's when Philip Morris put a bid in for Kraft. And my job was to come up with the defense plan so they wouldn't buy Kraft. And my job was really to squeeze another $10 a share out of them so we'd get the higher premium. And so we were successful in doing that. And as a reward, they moved me over to the International Foods Group when we were combining Kraft and General Foods. See, Philip Morris made a mistake when it bought Kraft. It made all the General Foods executives so rich they retired. So if you acquire a company, you can give the management team go-to-the-beach money, but don't give them stay-at-the-beach money. Okay? And what happened is Philip Morris now owned this General Foods company with no food leadership. And food is different than tobacco. I mean, you don't eat a cheese stick 25 times a day and don't care how much it costs, right? So they really needed Kraft for the management team. So they brought me to New York to consolidate Kraft International and General Foods International. There's 160 companies in over 60 countries. And I did that day and night. When my daughter Michelle was three years old, she would come visit me in the office with her little brother, her mom. They would bring a pizza, a new suit, and a new shirt. I would shower in the fitness center, sleep on my couch three hours, and do it again. But as a reward, they said you can go be CFO for any Kraft business around the world where you want to go. So I said, oh, okay, well, let's go to Scandinavia. Scandinavia had one product: coffee. Okay. Of all the products in the world that Kraft had, it only had one product. It was only in Sweden and in Denmark. So okay, I'll go over there, but I'm going over there to build the business. It was about a quarter billion in revenue, and when I left it was ten times larger. But through a series of acquisitions, internal growth, and I was audacious and trying to acquire the fifth largest company in Norway. It was called Freia. It was the largest chocolate company. It was right after I bought the largest chocolate company in Sweden, which was Marabou. And none of you guys know this, but good chocolate, if you ever want to find it in a specialty store, it's made very differently than we make chocolate in the United States. It's creamier, it's softer. And so I was in the office one night at 10 o'clock to do the Norwegian deal, and I get this phone call. And it said, are you the CFO? Said yes. And said, are you buying Norwegian kroner? I said yes, I'm buying Norwegian kroner. So, well, how many are you buying? I said 10 billion. He said, we don't have 10 billion Norwegian kroner. Who am I talking to? I'm the treasurer of the country of Norway. I said, what do you mean you don't have them? You said you have been moving the international exchange rate for the kroner these last few weeks, and you need to stop buying the kroner on the open market. So I struck a deal with the treasurer of Norway that we could buy it directly from the treasury. We ended up saving several million dollars, tens of millions of dollars doing it. But it was just the lack of realization that us ugly Americans have that we are big, and we go do things, and we don't really understand the impact on other companies and other cultures. So that was fun. I expanded into Norway, Finland, Iceland. So Kraft General Foods Scandinavia became Kraft's most profitable business anywhere in the world. It had grown about as big as it could. We had added all these different product categories: spices, potato chips, hard candy, soft candy, chocolate. And it was a fun experience. And finally, Nabisco called and said, hey, we'd like you to be CFO for everything outside the United States. And so I thought about it for a while. We'd been in Scandinavia for a two-year assignment that took seven years. Another lesson: don't ever believe what the company tells you when you take a move. Assume you're gonna be on your own and they're gonna forget about you. Okay? It doesn't matter how good you do, they're gonna forget about you. It was a great experience. We went to Sweden with two children, we came home with four. The nights are long in the winter and the television was horrible. So I went to Nabisco. And Nabisco International was doing fine. It was a spin-off of KKR. The deal was done at Galleria by Ross Johnson. And when this huge LBO took place, the biggest of its time, if you haven't read Barbarians at the Gate or seen the movie, you should do that. They asked me to come in and I was doing acquisitions all over the world, reconstructing Nabisco International. But at the same time, the U.S. business for Nabisco was not doing so well. And so the CEO at the time said, well, everybody knows that half of all advertising is wasted, so let's cut half of the advertisement. Okay? And they did that, and they made their target. And then the next year, for some reason, sales went down. And he decided to cut advertising in half again. And the company surprisingly ended up in this death spiral, and nobody could figure out why. But the bottom line is, if you don't know which half of the advertising is wasted, you better either figure that out or stop at some point in time so you don't kill the top line. My next story was, in my spare time, since I wasn't busy enough being CFO of everything outside the U.S., I ended up firing the CEO of Nabisco Asia. Because when I was reviewing his expense report on a trip, he and his head of human resources only submitted a bill for one hotel room. And so I confronted him about it, and he said it's consensual. It doesn't matter if it's consensual, it's against our policies, and you're fired. And he was probably one of our best leaders other than that, but one mistake is all it takes. So I fired him. And then the CEO of Nabisco looked at me and said, go run Nabisco Asia. It's like, say what? I said, you just fired our leader in Asia. This was in the middle of the Asian Financial Crisis. It was a lot of fun. I made more money hedging the Philippine currency than I did actually making selling cookies or anything else over there. It was an interesting experience. But I was also ahead of introducing products in China. And they said, what's your biggest product? So Oreo. So you can't sell Oreos in China. I said, why not? They said, well, Chinese don't eat sweet food, and black is the color of death. You can't have black food, and you can't have sweet food. It just won't sell. And so I talked to R&D and I said, well, could you have like a lighter brown cookie and could you take half the sugar out of the filling? And they thought that was a great idea. And I said, no, that's not an Oreo. So I said, heck, we're just gonna release Oreos in China and see what happens. And within a year, it was the largest selling biscuit in the entire country. And it was because the Chinese people really didn't care if it was a dessert of death. They wanted something American. It was a status symbol. The unfortunate problem was they carried it around in the wrapper and they never ate it. So we sold one to every person in the car, which was still a big deal. But after a while, they said, you know, you actually have to eat these things. And I don't like the taste, it's too sweet. So it's okay. But the next one I want to talk about after Nabisco was the first time I retired. I was 40 years old, and I'd averaged 140 international flights a year for 12 years. And we had four children. On most days, I can match the names and faces, but not every day. So I said, that's ridiculous. So I had the opportunity to stay home, and it was going great, I thought. But I got bored out of my mind. And finally, the kids came to me about a year ago and they said, you know, we love you, Dad, but you're now meaner than Mom, and you need to go back to work. You're the ringleader. That's my daughter. And I said, you know, I love you guys too, but I'm going nuts. I am going back to work. So I looked around, had a lot of opportunities, and came down here to Atlanta, just down the street at the Atlanta Financial Center. Joined a company called AHL Services. And their main business at the time was aviation security. So their business model was you hire kids away from McDonald's at minimum wage and you try to teach them how to keep bombs and weapons off airplanes. And your customers are all on the verge of bankruptcy. Okay? That was the business model. And I said, really? So I went to the founder, Frank Gargabri, great guy. And I said, Frank, your child is ugly. You never want to tell a parent that their kid is ugly. But when their kid is ugly, the best thing you could do, especially as a finance guy, is to tell the truth. And I said, you know, I think we should sell the cornerstone of your company. And I have a bunch of other stories about that, some are humorous, some are just sick, but you'd enjoy them. And nine months before 9/11, I sold the AHL security. And I sold it for $170 million. And on 9/12, it was worth zero. It's probably worth less than zero. And so I was either brilliant or really lucky. My wife did get phone calls from newspapers asking her, how did your husband know to sell the business before 9/11? I said, no, no, no, nothing like that. It was just a bad business model. The next thing I wanted to talk about is after AHL Services, I joined a company called Caraustar, the world's largest maker of recycled paperboard. And recycling's big today, it was big back then. And we would go to customers and say, look, the performance of the recycled paperboard, and this is like cereal boxes and things like that, it's also the outside liner of wallboard. And if you don't know what paperboard is, it's thicker cardboard. And we said, look, we can perform just as good as the virgin material. We're not cutting down trees, we're not polluting the environment. And they said, yeah, we'll buy it, but we're not paying a penny more for it. So why not? It's green, it's great. And they go, yeah, we really like that, but we're not paying for it. And so with all the sustainability and ESG talk today, we're still facing that: everybody wants it, but very few people want to pay for it. Hopefully the world is moving more in that direction, but we'll see. Also, the company was in trouble when I joined. Turned it around, refinanced, made it profitable, divested some businesses. I was free cash flow positive, good leverage. 92% of the debt came due beginning in 2009. And so at the end of 2008 was the financial crisis. And so I went out to refinance the debt, and nobody was lending anything. I mean, I went to the mob, and I didn't throw the box, but even they weren't lending money. It felt like it. I went to private equity. Okay, so close the model. So it shows you that even if a company is profitable, growing, free cash flow positive, timing is important. And sometimes you can plan things, but the message there is, do it earlier, pay a little bit of a premium, just get the important things done so you don't end up in an unfortunate situation. I then became the CFO at HD Supply. And HD Supply was a group of about 140 companies acquired by the Home Depot over a series of four years. They just made so much money they didn't know what to do with it. They started acquiring anything that sort of looked like construction. And I'm not about bad-mouthing anybody, but that strategy didn't work. They fired the CEO, and then they spun off the company. Okay? And so I came into this business that was really 140 companies. And we consolidated to four major businesses, four minor businesses, sold off some things. And on the second day, I walked in and the CEO said, okay, what should we focus on? I go, what do you mean, what should we focus on? He says, look, we have 140 companies here and all these different businesses. And I said, you know, I'm glad you think I'm that smart on my second day in the business. I said, but let me tell you what to do. I said, I looked on Wall Street at the sell-side analysts who covered wholesale distribution, industrial distribution. And I said, who are the best rated ones? And I got the five best-rated sell-side analysts. And I called them up and I said, look, we're a private company, we're thinking about going public one day. How do you evaluate whether to put a buy, hold, or sell on a stock? What do you do? So we have these very sophisticated models. Okay, fine. What are the four most important variables in your model that drive the value recommendation? Can we get back to you? Not to say you can't tell me now. So they got back to me within a week. One analyst gave me 80 pages of analysis. The shortest one I got was 20 pages. A lot of analytical geeks. But when you took the variables together, we had five analysts, four variables, 20 possibilities. There's only five things that came out. And they said, look, if you focus on organic growth rate, operating efficiency, profit pull-through, earns and turns, so your margin times your inventory turnover, and your return on invested capital, those are the five things that make a difference in this business. And I said, okay, well, we're going to focus on those. And for the next two years, we did. We built our incentive program around them. And then, even though we were still eight times levered, the highest levered LBO in Wall Street history, we had an analyst day where we said we're going to bring this stock public. And they said, you guys are nuts. Nobody's ever had an LBO with an eight times leveraged company. And we said, well, let me tell you what: out of organic growth, operating efficiency, profit pull-through, earns and turns, and IRC, out of the 20 peer companies, we were number one in three of those and number two in the other two. They go, wow, okay. So every single analyst there, 17, said we will recommend a buy on your IPO just based on this performance and the potential you have. And so it was successful. In June of 2013, we took the company public. And my world changed because instead of consolidating and building a company, I was now the guy that had to talk to Wall Street 16 hours a day explaining what's going on. And it's like, that's not why I came here. So I retired again and started trading, putting call options myself, doing really well. And I got a call from a company called Recall, based in Norcross. They're actually based in Sydney, Australia. It's another story. They said, hey, you want to be CFO? I said, no, I don't. Been there, done that. I have a t-shirt. And they called back a couple weeks later and they said, come on, at least talk to us. I said, no, I don't want to be CFO. You're not going to find a good CFO. They said, what do you mean? He said, well, after your first call, I looked up the company that you did some diligence on and said you're too small. I said, you're not going to be around in a year. No good CFO is going to walk into a situation and then have to find another job. You're going to get acquired, or you need to make some serious acquisitions. And they said, huh. Well, they called back a week later and they said, would you at least have lunch with the CEO? And so I did. I met Doug Pertz. He's the CEO at Brink's now. That's another part of the story. And I said, look, okay, I don't want to be a full-time CFO again, but I'll consult for you. And so in a month, I put together a couple of big acquisitions that would double the size of the company. Had the financing lined up. And we were down in Sydney at a board meeting in Australia. And in the lobby, we bumped into the CEO of Iron Mountain. They were number one in the world at paper file storage. Recall was number two. I was introduced and basically said, look, you should really buy us. And so the two CEOs went upstairs and on the back of a napkin, same old story, they threw out the terms of the deal. And that was after my second month in the company. So when they came back down, they said, yeah, I think this is going to make sense. I said, okay, now you can hire me. You give me a bonus potential, you give me a lot of equity, and I'll get this deal done. And so we had to clear antitrust on three continents. It took about 10 months, but we got it done in May of 2016. We sold the business, and it was good for everybody. That's when Doug knew that his time was limited at Recall. And he was getting recruited, headhunted. And Brink's had an activist shareholder and said, come work for us. And long story short, Doug took the job. And then he called me up and said, hey, come be my CFO. I said, no, I'm not doing this again. And he said, okay. And he called back again and he said, well, come on. I said, no. He said, well, what would it take? And I told him something ridiculous. And he said, that's ridiculous. I said, I know, I don't want to do this. So he called back half hour later and said, okay. He said, oh, geez. So lesson there: be careful what you ask for, you might get it. And then you're in a really tough ethical situation. So I went to Brink's. And the first thing I did is I walked to the U.S. headquarters down in Dallas. And they have the conference room called the war room. And I walk in there and all these papers around the wall. I said, what is this? They said, a bunch of A3s. Those of you who are lean people know what an A3 is. And they said, well, these are our priorities. I said, how many are up there? About 50. I said, you can't have 50 priorities. If you have 50 priorities, you have no priorities. I mean, imagine in Georgia terms: you have 50 footballs and you put them on the field and you move each one a yard a minute. At the end of the game, you're gonna have no touchdowns. I said, that's exactly what Brink's was doing. I said, you really need to focus. So we got them to focus on four things. Stock tripled in three years. The business turned around. Along the way, we said, look, this industry needs to be consolidated. We had four competitors in the United States. And the two that were the smallest, neither one of them was for sale. So what we did is on the same day, I went and put an offer in for both of them. And one of them, they were both family owned. And what I said was, we want to buy your company. We want to buy it now. And he said, we don't want to sell it now. I'm not ready. I said, well, here's the deal. I put in an offer for your competitor as well. And the Federal Trade Commission is going to allow only one deal forever. They will never allow the second deal. So if you ever want to sell your company, you need to do it now. You need to do it with us because if you don't, the other guy will. And it was a game of chicken. It worked. We ended up buying Dunbar. Great acquisition. But it was a way to buy something that wasn't for sale just by understanding the field and leveraging that. I got tons of stories, but I only have three and a half minutes. So throughout my career, I've probably done 100 acquisitions. The success rate of acquisitions, I think, is up 30%. Mine is probably 98%. And why is that? It's not because I'm really smart or I'm a really brutal negotiator. It's because what I do in every single deal is I figure out what are the few assumptions that drive the value to me for this business. Is it the top line synergy? Is it the cost synergies? Is it growth in revenue? Is it expansion of marketplace? I mean, what is it? And then when I identify the top assumptions, I figure out who's the owner of that assumption. Is it the head of operations? Is the head of sales? I bring them in and say, look, I'm working on a confidential deal and thinking about acquiring X. Oh, that's great. We would love to own X. I said, okay, yeah, I know you would. I said, okay, if we were to buy X and you were to be able to consolidate the markets and leverage the portfolio, how much could you increase sales? One plus one has got to equal more than two. What could you do? Oh, I could increase sales 22%. I said, okay, so a year from now, if I come to you and sales are only up 21%, you're fired. Okay? How much do you think you can increase sales by combining these? Oh, maybe 16%. Okay, so I put 16% in the model. I do the same with the operations guy. Okay, we can combine their factories with our factories. How much would you say you could get the average cost down to? Without any authorities, cost by like 11%. I said, okay, if I come to you in a year and costs are down 10%, you're fired. How much can you reduce costs? He goes, 8%. Okay. And so I put a model together based on the assumptions of each of the owners of the key variables. And it comes up with how much can I afford to pay. Okay? And I have that price. And I go in and negotiate. When the price gets one dollar above that, I say thank you very much and I walk away. So I walked away from a lot more deals than I've done. But that's how I've been successful: you never fall in love with the deal. And you have the owners of the key assumptions all holding hands going into it to death. And then when you succeed, then it's all about the execution. But a lot of people try to figure out how to be successful in M&A. The first thing is don't fall in love with anything. And the other thing is figure out what key assumptions are and have the owners of those assumptions on your team. That is the end of the time I was given. I would like to open it up for questions and comments. And remember, if you'd like to ask a question, please signal for a microphone. And we're recording this for the college's YouTube.