Mastering the Art of Centralized Treasury with Jonathan Leon

Well, yes, thanks Mike. I started in university with a keen interest in finance, and actually the decision that needed to be made coming out of university was the Wall Street route or the corporate route. For reasons that still make sense to me, it was the corporate route. I kind of liked the idea of being the client, having the large financial heft and the power that a big corporation can bring. That sounded attractive to me. I've been fortunate to be part of large corporations most of my career, and I've really gotten what I expected out of it. I kind of fell into initially a smaller energy company that gave me a chance to actually see a lot of different areas of corporate finance — actually be in capital budgeting — then quickly moved into doing daily cash management on 13-column sheets by hand, and that was a very domestic company. I got to learn a lot around that. And as a smaller corporate headquarters staff, I worked for a treasurer who had a variety of responsibilities: I would call it the traditional treasury cash management and activity for the most part, in capital structure activity, but he also had areas like industrial relations and he had some capital budgeting responsibilities. I got to see the other parts of a corporation, so I always learned on the periphery what was ancillary to treasury at the same time. I stayed close to domestic cash management, and then over time that company began to get a little more global. I learned a little bit about the international world and had to build by hand, and that building by hand really gave me the opportunity to really understand what international global equity looks like. So that was really the impetus for the interest, and really from there it's been just growing that interest in touching more and more areas that are in play in treasury, and then building treasury and having opportunities presented to me and raising my hand and saying, 'Yeah, let's take a shot at building something different, making it bigger and better.'

I say started broad, and I had that debate with myself many, many times. I probably would have wished I was more broad, and I still think the greatest skill that a treasury professional can bring to the table is accounting knowledge. So I would have liked to spend more time either in an accounting role and understand — I'm not a certified chartered accountant at all, I took a lot of accounting for work in university and that has served me well as I stayed very close to the accountants, recognizing that treasurers come up with a lot of good ideas, economically attractive ideas, that may not make sense in terms of accounting or financial reporting. So understanding the impact — foreign exchange is a great example, or any derivative is a great example — where things may make more sense economically than they will in the books in the P&L of the company. Having that broader understanding of how the work that treasury teams do impacts your books and company is something I got later in my career that I wish I would have understood earlier on.

Actually, I was at Brinks for a number of years, went to Universal for Universal Corporation for a short time. It was interesting: I went to Brinks. At the time, Brinks was just one entity in what I described as maybe a late 1970s conglomerate that had a number of businesses that were disparate, had no synergies between them whatsoever. From there, I was initially doing capital markets activity and investor relations, moved slowly into more and more traditional treasury, and then really got into — for a number of businesses and a number of reasons — we started getting into more hardcore global treasury. We built a number of different types of cash pools, so we had to start businesses that each needed their own liquidity structure, so we built those around the world. That's where early on I understood the point of getting really joining myself at the hip with my tax partners to understand that what we needed to do around the world from a treasury perspective had tax ramifications as well. I did that for a number of years, led the international treasury function of a company that was 80% non-US activity, which was fantastic.

So Brinks today is one of the world's leading secure logistics companies. When I joined back in the late '90s, there was a company called Pittston, which no longer exists. Brinks was one of the many business lines of that company. We had a coal mining company, we had a global heavyweight freight company, we had other minerals businesses, we had a home alarm company in the US. It was very disparate. Brinks was one of those. So the treasury activity that I worked on focused a lot on a heavyweight 3PL business that was big in Asia Pacific. Brinks, until this day, has a very large global presence in Asia Pacific, Latin America, Europe, and Africa. So it gave us opportunity. Now we had to treat each company differently — basically had their own capital structure and had their own bank tax requirement needs — so we got the chance to build different structures for them. And at the end of the day, it made sense simply because we were able to, as we vested those businesses into what is today left as Brinks, the global secure logistics company, we had to ultimately unwind those structures. So I got the opportunity to build and then unwind them all at the same time, over a number of years, and that was just as fascinating — learning the actual building of these liquidity structures around the world.

Yeah, it was the desire to become to sit in the big chair, if you will. So it was a treasury management role. I had the cash management experience. What I got when I moved to what is now Brinks and was formed with the Pittston company, what I got to see was a number of different industries, how cash management worked across industries, whether from a manufacturer to a service provider. We did everything from different payment methodologies, different settlement methodologies around the world. I got to get pretty good knowledge about very specific markets about liquidity management — where you can pool, where you can net. So I built on knowledge across dozens of countries that allowed me then to move into a leading international treasury function for a very, very global organization. And from there, it was really heading towards the treasurer role. I had, at the same time, done capital markets work, of course, that was more on an as-needed, sporadic basis, as you know, based on refinancing activity, acquisition activity within the capital markets as well. I felt quite well-rounded, and I said — I think I was wise enough, or maybe learned from past mistakes — to bring along the tax team, legal team, and make sure that I knew where the pitfalls were. And then I started absorbing more and more work from the treasurer, and I went to the treasurer and said, 'I can do more, let me do more of what you do,' basically asking for that grooming, and ultimately led to the treasurer role. I did jump briefly to Universal Corporation because it was a faster path at the time to the treasurer role, only to find out shortly — 15 months or so afterwards — that the actual treasurer role back at Brinks had opened up, and I went back there for a few years before jumping over to Owens & Minor.

I enjoy being the boss. I enjoy managing people. The things I'm most proud of as I look back in my career are from the mentoring I've done. There are people that worked for me that are now corporate treasurers themselves, and that's fantastic. So I really, really enjoyed that. And I've had people that had very successful careers that worked for me in treasury and have gone out into different parts of a corporation and been very successful in their own right. So I have a very candid, direct style with people working under me, but with the goal to do what's best for them and the corporation.

From my perspective, I am maniacal about continuous improvement. I always want to think about what's next. And I think I have learned to accomplish something, stop, celebrate it, and then move on. Earlier in my career, I was like, 'Okay, we just closed this major acquisition, we closed this major financing, let's move on, let's get ready for the next one,' without stopping and celebrating the accomplishments. As I've matured, I've learned to stop and celebrate. But I do thrive, and I do expect my team to think about how we can be better tomorrow, and then in the longer term, what is it we really want to aim for? And we sit today and say, you know, I'm in the middle of revamping our US cash management structure. It's been too many years, we've got to get better, and I want to leapfrog the current best practice to figure out where best practice is going. And I ask that of my people. I strive myself — when I even did the capital markets activity or even the bank deal, just through a basic revolving credit facility, my team and I, going back even before it was easier to find information, we scoured other people's deals and picked out the best part of every deal, and then went to our agent and said, 'This is the deal I want.' I never let a bank or a broker bring the best to me. We would go out with, 'Here's the deal we want, and I've seen you do this for ABC company and XYZ company, I got this, I want that.' And that's — you know, we set high, set high and figure out what's best. I think some people love that constant rigor of going in and doing what the next great thing is, and some people don't manage well underneath it. And then we put them in a position where they can best succeed.

I'm in Richmond, Virginia, so it's a small city if you're not familiar with it in the Eastern US, and we all — everyone in corporate finance kind of knows each other, it has done for a number of years. So I knew the CFO, the past treasurer of Owens & Minor for some time. And what they presented was an opportunity to bring a little more sophistication, modernization through the program. It's a very old company, a lot of things are still being done in an old-fashioned way. So everything from acquisition financing to managing global cash was done well but needed a little more modernization, sophistication. That was attractive to me. At the same time, there was a desire to grow the organization that required really being willing to forego an investment-grade credit rating and moving down to something high-quality, high-yield rating so we could tap those markets. Some had done that at Brinks. I think it's important strategically to understand where you want to lie in your credit quality in order to grow the business, and then you have to recognize the earnings and cash flow strength and profitability strength of your business. So we strategically wanted to step down so we could become more acquisitive, find that non-investment grade but still get that look like investment grade areas where we've been landed. That worked out pretty well for us as we grew through acquisition. And then just add more functionality around treasury, get better linkage between treasury and tax, better linkage between treasury and insurance and risk, things like that that were just kind of absent that I got to bring to the table. So it was a chance to rebuild. I thought at Brinks I had built an awful lot, I was very proud of what we had accomplished, and the platform that I left was a chance again to go to Owens & Minor, a 140-year-old company, and actually build something new.

So I knew I was going from a difficult business to a more difficult business. I think it's proven to be a more rewarding business than I imagined. But I'm a firm believer — and I think because when I first came to Virginia, I worked for what was Pittston and now Brinks, and it was a multi-industry company — I'm a firm believer that smart people can adjust to any industry. You don't really need to embed yourself in a particular industry. It can be comfortable, but if you like to just learn different things, I found it to be wonderfully energetic. Learning healthcare brand new — and I don't know if there's anything more complicated than the US healthcare system — and I've got to see that more from the inside than I ever would, and I found it energizing. It is very different, particularly on our home health business. This is about two and a half billion of our 10 billion dollars in turnover, where we get into the dynamics of the third-party payer model in the US, which there's really nothing like that. So as a healthcare consumer, I found it really eye-opening to see really how it works and how complicated it is, and how that impacts from a corporate perspective the working capital demands. Working capital demands vary dramatically between businesses. Even Universal had tremendous working capital flows because it was a very, very seasonal business based on growing seasons. Brinks was a little steadier in their working capital. Owens & Minor again has heavy seasonality in working capital, so that was a dramatic change. And part of it is just the nature of the insurance reimbursement model that we have in US healthcare. So that's been interesting, and that's been actually a significant driver of how we manage tax and overall treasury functions here at Owens & Minor.

Yeah, the journey has been somewhat as expected, with probably not a few more challenges. We came in wanting to be acquisitive, wanting to put a balance sheet in place that we could allow for acquisition growth, wanting to modernize our cash management. We're doing that, we have done that. We have a tax pool that works, we move money around the world very tax-efficiently. We're not quite follow-the-sun, we're not quite big enough to get there either. And at the same time, where there have been challenges is in business performance. Business performance has led to too much leverage, which has really allowed for a focus on working capital. It's one of the things again I would say I'm more proud of here at Owens & Minor: we built a working capital discipline probably five years ago, maybe five and a half years ago, frankly out of necessity. And it started with four or five people in a dark conference room figuring out how do we squeeze more — get our AR faster, how we squeeze more, get better terms on our AP — to what is today a 30-person, every Thursday cross-functional organizational call that gets the attention of the highest levels of the organization. It's not uncommon to have our CEO join the call, and we talk to our board consistently about our working capital activity because the business has gotten itself in quite a bind from a cash flow liquidity perspective. And it is now, I believe, part of our corporate DNA to effectively manage working capital. So while born out of necessity, I think we've landed in a very good spot. And we've had turnover throughout the ranks, and it is just a focal point. This week we'll go through our reviews of each business line for this past quarter, and there'll be an in-depth discussion on every one of those on working capital. That didn't exist when I joined the company. It was just there, and I started by every so often needing to take that working capital tree because there's a lot of money lying behind. But here at Owens & Minor, we've made it part of who we are.

Yeah, COVID was interesting because we went into COVID as a pretty leveraged company that had some struggles in its core distribution business. In 2018, we had made an acquisition with a company that frankly manufactured PPE, so we had a very large fall-in in the earliest days of COVID to try to meet the demand requirements of our customers and the federal government. And it was taxing on the global organization. Obviously, we went from having to ramp up our manufacturing and distribution capabilities unlike anything we've ever imagined before, because we were in this hopefully once-in-a-lifetime pandemic, and we didn't really know what that meant from a treasury perspective. It was basically initially: find liquidity and make sure you're still getting paid from your customers, because our customers — if you remember what happened initially, healthcare stopped. Hospitals shut down, and we were concerned that we weren't going to get the inbound cash flow from our hospital customers to put it back into our manufacturing business to make the PPE. Long story short, that worked out fine; customers continued to pay us well. And then we began the cycle of: okay, everything we make, we need to bring back and put it right back into manufacturers. So working capital, the cash conversion cycle, sped up very, very quickly, and that continued really throughout the entire pandemic. The company is very proud to say we answered the bell as best we could, dramatically increased our production capabilities to serve and get PPE out in the global marketplace as quickly as we possibly could. We also — it did bring enough cash to allow us to delever the balance sheet and make our most recent acquisition of AHI Healthcare in 2022. It was a time of really concern about our customers' financial health, those being our hospital customers' financial health, and then making sure that we were moving past it quickly enough to get it into our manufacturing sites to produce PPE as quickly as possible. It was fascinating, and looking back, it's one of those things where there probably was really no time to think; it was just produce, produce, produce.

Yeah, it was interesting. During prior to the pandemic, we were, I think, very conventional. People were in the office five days a week for the most part. In the early days of the pandemic, a number of us stayed in the office — we had a healthcare exemption. The team stayed in the office as well, for two reasons. One, there was still a lot of need early on, believe it or not, for signatures on things. So I found myself coming into the office just to sign things and then go home again, which seemed silly. We were also in the midst of divesting a European asset sizable enough that required enough of us to be together physically. That ended in June of 2020, and then everybody became basically stay-at-home. A handful of my team chose to come in — I'm in a suburban location where we have the luxury of actually being fairly distanced and walled off from each other, so we stayed in. But at the same time, we became managing people from afar. I've had the learning — I want to call it the benefit — of always having team members that worked for me in Europe, always sat in a different stage, so I had some experience in managing people who were three or four thousand miles away. So doing something that was now a couple miles away and learning life in Zoom and Teams became a little easier. We had regular dialogues, and I think looking back now, it seemed that we made the transition fairly seamlessly, and most people were away. I think sitting here today, we have a bit of a break during our summer season, but we have been in a hybrid environment with people in roughly two to three days a week. That has worked. Frankly, most of my direct reports have been in the office more often than that. I'm in the office for four or five days a week — that's not as a result of my style, just their personal preference. But at the same time, it's an adjustment. Even someone as veteran and old as I am has been — I don't love it, we're adjusting to it. And I've had the same conversation with younger folks about what they may be missing with interaction, and we've made an effort to make sure that we have enough face-to-face interaction so that when we're not in the office, we all recognize each other. I just met one of my colleagues that worked with me for the first time in five years face to face last week here, so that's far too long to go without meeting somebody, and that's not what we want to do. We get into a regular cycle of seeing each other face to face every couple of months.

Absolutely. And you even see younger professionals, and when they're in, to your point of the 'why,' they recognize the benefit of being in the office. It doesn't mean they don't enjoy the flexibility of being outside the office, but they do see the benefit. And even the most thrive say, 'I really don't want to be remote, but I get why I need to be in.' And that interaction — both the social nature of it and understanding who it is you work with every day, as well as the learnings and the mentoring — are just critical. And people see it, and if they don't recognize it, I'm pretty open about pointing it out. 'See, this is something you can't do if we're all remote. We can solve a problem so much quicker if we can pop into a conference room and just bang out the issue and we're done, and we're all on the same page.' So something just pointed out, but I think people do recognize the benefits of being face to face.

Yeah, I think it comes back to who makes the best decisions for the corporation, for the enterprise. And if you're not — I do believe if you're on a regional basis or even a local basis, you just unfortunately don't get to see the entire picture of where cash needs to go next. And I've done a lot of acquisitional companies that are decentralized, and then I spend time trying to understand the policy: why is the cash where it is? Why are they structured the way they are? And I always come back to: well, they probably didn't get the big picture. And I have found that working in a corporate headquarters office, the big picture usually requires centralization of treasury activity in a tax-efficient way, and to bring it back to the US. Now, there's work required to get that done. Again, you need to have your legal and tax teams at your side to make sure you're doing it smartly, legally, and efficiently. We've done that time and time again throughout my career, and I think it just gives the corporation — technically a corporate asset, the breadbasket, if you will — to go out and be strategic with it. 'Here's what we have to work with.' And if there is liquidity sitting in pockets around the world, you don't have that visibility to what we get to work with strategically. And I have a lot of those expressions on my whiteboard. And why would you raise money? I view self-sustainability: the pockets of cash throughout the world, I don't need more. I can utilize that cash. The less I need a bank, the less I am at the whim of their pricing, their terms and conditions. So I become pretty passionate about it, and I think self-sustainability is something every company — regardless of issues that may impact how they manage it — is an important concept to really live by.

Yeah, we spend time getting the visibility at a minimum. At a minimum, we need to know what's there and what we think we can do about it. And certainly within the last few months here at Owens & Minor, we've made some new investment in some of those countries, and I take it as my responsibility to remind people: 'You're investing in this country. Getting the cash out of the country is going to be difficult and expensive. As long as we all know that going in.' And what we do then, particularly in the early days, we just don't capitalize an entity and just leave the capital there. I believe in minimizing the capital structure and the cash in those countries where it's hardest and most expensive to extract cash out of. Everybody likes a cushion, right? Every local manager, every local finance person likes a cushion. And I just don't believe in a cushion. I believe in operating to the minimum you need to get by. We do the same thing here domestically: what's the minimum we need to get by? You shoot for the lowest common denominator, and that's the best you can do to mitigate the risk of that trapped cash.

The biggest thing I've learned in doing a lot of M&A, moving into a lot of new markets geographically and industries, is: don't assume you have it right. Assume things are done by the other side in other markets for a reason. And most acquisitions we went into with that approach. Quite frankly, there really wasn't a good reason; it was just some inefficiencies that we can improve upon. But never assume we have the answer going in. There's usually — very often there will be a reason for something being the way it is. It doesn't mean you can't undo it and find a better way, but where I have made my mistakes is assuming that they're probably wrong in their approach and I have a better way. Check it all, check it all very carefully in diligence, a function like you're responsible for doing the diligence of an entire deal. But I've learned a lot from that. Quite frankly, more often than not, I usually do make changes in processes and bank groups and personnel that can be sometimes on the margin, sometimes I'm taking the principal structure out. But I always try to go in with a very open mind that they probably have done this for a very sound business reason, and give it some time and don't rush to judgment about someone else's walking in their shoes first of all.

Yeah, I think it's important to always be willing to raise your hand. I've been very assertive in doing that, saying, 'I'll do this, I'll take something off your plate.' If you're looking up the chain at an assistant treasurer, treasurer, or anyone, and say, 'Hey, I'd like to learn how to do this,' and raise my hand if a project comes through, if an acquisition comes through, if a new ERP system comes through — it doesn't need to be pertinent to what you do day to day. I do believe in raising the hand and doing for either things that are more directly up the ladder or things that will broaden you out. And I think that's the most critical thing you can do. I think people get too comfortable with their jobs, and I have never seen a boss — mine or someone else's — that said, 'No, I don't want you to take on more, learn more, or learn different.' So I'm a big proponent of people just raising their hand and getting out of that comfort zone as quickly as possible.

My pleasure. Yeah, been fantastic. Thank you.