Story and photos by Jeff Keeling
Things haven’t slowed down at NN Inc. since the global manufacturing company’s early July announcement it would stay in Johnson City as it expanded its headquarters to match an aggressive growth plan. As the year draws to a close, local management is preparing to move into the former SunTrust building, and key executives are putting the pieces in place from four acquisitions over the past year. The latest, announced just a few weeks after the headquarters announcement, was the $300 million purchase of another global company nearly NN’s size, Michigan-based Autocam.
It’s heady stuff, but all part of a plan revealed shortly after Rich Holder became CEO in mid-2013. Holder, incidentally, was recently given the “M&A Atlas Americas” award by the Global M&A Network in recognition of corporate growth leadership for the acquisitions.
Now, Corporate Treasurer and Manager of Investor Relations Robbie Atkinson says, NN must manage all the growth in a way that creates shareholder value and helps NN meet its obligations for job growth at the headquarters.
“Part of acquisition – and specifically with Autocam, where you have a world class team of leaders and systems – is not just to say, ‘here’s all of our NN systems,’” Atkinson says. “It’s to take the best of both companies and then to come up with a business system or process that is integrated across our company.”
Successful integration, Atkinson and VP ?? Will Kelly say, will help drive the growth and profits to grow at the corporate offices. Much of it will take place at the production level, with reassessment of where certain pieces and parts in the fast-growing company belong for maximum returns.
But there is a flip side, which has NN expediting plans for finishing corporate office space on Mockingbird Lane, where some management staff could move in before year’s end. Shared services such as accounts receivable and payable, payroll, human resources, treasury and others not only are growing, those still located in previously acquired companies are headed for Johnson City.
“Each group had its own finance team, for instance,” Atkinson says. “When you think of a company of our scale, the reason my job was created, and that we have a treasury team and a new shared services manager position is that it makes sense to bring those services together.”
Kelly has hired two people for his group recently. IT has added a couple as well. Key folks are expected to be relocating to Johnson City from the acquired companies as their talents are seen to be most effectively deployed at corporate as well.
“As far as our commitment for having received incentives, we’re well on our way,” Kelly says, referring to local and state incentives of around $3 million NN received to keep its headquarters local.
NN makes high precision metal bearing components, industrial plastic and rubber products and precision metal components for customers worldwide. In exchange for tax breaks, a cash grant from the state and other incentives, it committed to creating 200 jobs over five years. Holder also has hinted that satisfactory corporate growth could lead to new jobs and new types of production at NN’s local factories in Erwin – where the company started more than 25 years ago – and Mountain City.
Kelly has been around through almost all of NN’s growth. In 2006, when the company acquired Whirlaway, an $80 million Ohio-based precision metal components company, Kelly was already a 13-year veteran. The recession interrupted growth plans established under Holder’s predecessor, Rock Baty. It also put the focus on missions unrelated to combining the disparate systems from various groups’ platforms, some of which “couldn’t talk to each other,” Kelly says. With the four new acquisitions that have taken NN from just shy of $400 million in sales to an expected $750 million or so, the time for that integration has come.
“We’re bringing all these 25-plus locations around the world into a common platform and way of doing things,” Kelly says.
Making the right parts at the right time in the right place
The Whirlaway purchase brought J.R. Witters into NN’s fold. Witters headed NN’s precision metal business, and after the Autocam acquisition, which closed in September, the company put Whirlaway and V-S, another acquisition, together under the Autocam umbrella. That has freed up Witters, whom Atkinson says is, “very adept at Level III lean efficiencies, turning around things, integration and making sure things are working as they should.”
Witters, who will relocate from Ohio, is heading NN’s new “corporate integration and transformation team.”
“We gave him a team of dedicated, functional leaders across the company that report to him from supply chain, IT, across the board,” Atkinson says. “JR’s job is to make sure all of our integrations and projects across NN, whether it’s a new company or an existing model with an overlay of an information system or something – that those things happen efficiently, functionally, and that we do achieve those synergies.”
Atkinson calls Witters “a phenomenal business leader,” and says he’ll make sure the recent acquisitions and those in the future “fall in line as quickly as possible.”
The past year has seen NN purchase V-S, Chelsea Grinding and RFK, companies in Illinois/Mexico, Michigan and Bosnia, in addition to Autocam. Atkinson says many of those integrations are pretty far down the path. Making sure NN responds to global markets, though, means rationalizing its global footprint effectively.
“We have services that are being done in the Netherlands that maybe should be here in Erwin, for example,” Atkinson says. “All that integration and transformation needs to be working as it should.”
That is particularly true in the post-recession economy, Atkinson adds.
“When you think about every dollar, incremental margins, dropping everything to the bottom line as much as we can and continuing to add shareholder value – that’s what JR’s function is.”
The global picture, and a “CAFE” of potential delights
NN’s need to assess global markets intensified with its recent growth spurt. Atkinson says the company has been weathering a stagnant Brazilian economy thanks to solid leadership and good customer relationships in its largest Latin American market.
In Europe, where NN has several production facilities, the Euro economy “hasn’t really gotten off the ground yet,” but much of production there is headed to China for high-end automotive sales, “and that space is good for us.”
Even on the continent, Atkinson says NN’s new scale in the high-precision ball market puts it in a class with just a few players in its ability to deliver high volumes. Increased sales volumes, when they come, should have a magnified positive effect on profits.
“We think we’re well-positioned in Europe with a very efficient team that when Europe starts to get some legs in 2015 and beyond, we’ll be able to drop a lot of that revenue we generate out of that growth period to the bottom line,” Atkinson says.
As encouraging is organic growth likely to come from the Autocam platform as higher U.S. fuel efficiency standards kick in.
“It’s a stable, very profitable business, but it’s also a growth business,” Atkinson says. “You think of the seven main areas in the CAFE (Corporate Average Fuel Economy) standards that all the automotives have to adopt for their fleet – we’re a top three in five of those of those.”
Adoption of the standards has to exceed GDP and the overall automotive build rate to meet requirements.
“Our Autocam Precision Components Group is positioned very nicely to continue to reap the benefits of that transition, and we’re very early in that cycle,” Atkinson says.
Bringing it all back home
The local community and state put weight behind the effort to keep NN. Holder wasn’t coy about the company’s multiple options, which could have included pulling up stakes with its headquarters. Now, it has five years to create those corporate jobs and meet the state incentive’s mandate. The expected average compensation tops $85,000. The current corporate team, now at around 25, begins settling into its new five-story, 60,000-square-foot digs any day now.
In Erwin, the company’s flagship plant, a new “specialty cell” is planned to serve a market sector in which NN doesn’t currently compete, Holder told The Business Journal in July. That segment needs to grow, as the Autocam acquisition skewed NN’s product mix more to automotive (70 percent) than is desired long-term.
“People are looking for continuous returns no matter where a cycle is, so we have to diversify ourselves to do that,” Holder said.
“We’re moving the warehouse so we can build production space there. We’re growing every day both in Erwin and Mountain City, so we’re going to keep doing whatever we have to on that site to support the growth.”
NN’s stock price spiked to around $30 a share after the Autocam purchase, but has since settled in the $20 range, still significantly higher than before the company announced its expansion plans in mid-2013.
The company’s third-quarter earnings report released Nov. 4 included one month’s worth of numbers post-Autocam. Net sales were $125.6 million, up from $93.0 million the same period of 2013.
Most of the growth came from Autocam, but more than $3 million was from volume increases in existing businesses. A variety of non-operating factors, including some related to acquisitions, left NN with a $3.8 million net loss for the quarter, compared to a $5.0 million profit a year earlier. Backing out the non-operating costs, what NN is calling “adjusted net income” was $6.3 million for the quarter, compared to $5.0 million in third-quarter 2013.
Through nine months, adjusted net is $17.8 million in 2014, compared with $13.3 million in 2013. Standard net income is lower ($6.6 million to $12.7 million), and NN’s debt (net of cash) is $300.2 million, compared to $33.4 million at the end of 2013.
Holder revised earlier expected full-year revenue guidance of $400-415 million up to $490-500 million.