Jim Reid-Anderson likes to think about the lives his company saves every day.
As president and CEO of diagnostic device maker Dade Behring, Reid-Anderson’s machines, found in hospitals and laboratories around the world, are used to diagnose diseases for millions of people each year. But it was Dade Behring that was headed for life support before Reid-Anderson and his team sought Chapter 11 bankruptcy and developed a plan to pay down more than $1 billion in bad debt.
“The company actually began its current form as a (leveraged buyout) about 10 years ago,” says Reid-Anderson. “What you see today is the company that was created over that decade through a series of spin-offs, mergers and acquisitions.”
The aggressive strategy carried enormous risk. As such, in 2000, when the economy started to sour and interest rates rose, the company was suddenly in trouble, and Reid-Anderson, newly installed as CEO, began to search for solutions.
The bulk of the problem was a result of Dade Behring’s rapid expansion, during which it racked up huge debt. In general, a conventional roll-up strategy is designed to consolidate back room activities and build incremental profits that are later used to pay down debt incurred during a leveraged buyout. In Dade Behring’s case, it had accrued more than $1.6 billion in debt by early 2000.
With any roll-up strategy, there is an enormous risk that a hit to the industry or an increase in interest rates can quickly skewer the plan. For Dade Behring, the issue became steadily rising interest rates. And, because it has extensive overseas operations, the strong U.S. dollar added further trouble.
“As interest rates began to spike in the U.S. — they popped up about 200 basis points — and as foreign exchange rates softened, we were in a position in the fourth quarter of 2000 where we broke two of our bank covenants,” Reid-Anderson says. “Although we never ran out of cash, two of our bank covenants were dependent on these factors. It put us into a position where we had to renegotiate some of our bank debt.
But, Reid-Anderson says, while he, his financial team and the lawyers attended to the money issues, he had to keep the rest of his management team’ focused on running day-to-day operations.
“The key was remaining focused on our business, the job at hand, [and] not allowing ourselves to be overly distracted by the debt restructuring,” he says. “We had a very small team working on that, while the bulk of our people were focused on our business.”
It worked.
“We ran the business very, very well,” Reid-Anderson says. “The net of it was setting a strategy that everybody believed in, setting some key imperatives and a few key metrics that we tracked, and then just executing relentlessly.”
A solid core
Despite its financial concerns, there had never been a question about the product lines of Dade Behring, the largest company in the world dedicated solely to manufacturing and distributing diagnostic tools. That dedication to diagnostics, Reid-Anderson says, was one reason the company moved through its restructuring process without a disruption of operations.
“We found that customers liked the fact that we were an independent company that was solely focused on diagnostics,” he says. “To our knowledge, we’re the only company to ever have gained market share in a Chapter 11 process, to have gained customers. And we retained all of our suppliers.
“Most of the competitors in this business are either pharmaceutical companies or life science companies — very big companies with deep pockets, where diagnostics is not their focus,” Reid-Anderson says. “All we do is focus on diagnostics; we have no other businesses. Our customers stood up and voted in support of us as we went through the toughest time in our history. It was a light bulb going off for us that there was this support for a company that only focused in this arena.”
Reid-Anderson wants to make sure that light bulb doesn’t burn out. Accordingly, he has no intention of moving Dade Behring, which had $1.4 billion in revenue in 2003, into any new product areas.
“The reason that we’re not tempted is that I have a fundamental belief that our strength comes from focus on one arena, on one set of customers and getting it right with them,” he says. “I think there is a role for diversification in industry, but you really have to know the industry that you’re getting into.
“Our expertise lies in the diagnostics industry. We have an intimacy with our customers and design of our products. That excellence and expertise has come over 100 years. You don’t just pick that up overnight.”
Getting out the message
Reid-Anderson recognizes that it takes more than a singular focus to maintain employee and customer relationships, especially as a company moves through a restructuring.
“It really demoralizes employees over a period of time,” he says. “It gives competitors a chance to poke at you by saying you’re unstable. And we had that for a number of years.”
The key was to be completely open and honest with employees and customers about every aspect of the restructuring.
“We told people openly, honestly — as early as we could — what we were doing,” Reid-Anderson says. “We got them on board with us. If we tell people the truth, communicate with them regularly, they will follow you pretty much anywhere.
“Many companies, when they have crises, become distracted, and the underlying business suffers. That didn’t happen with us. That didn’t happen because we have very strong people, but our people were laser-focused on the business, and we limited the folks that were on the restructuring to a handful.”
It took the company two years to reach an agreement on the restructuring. All the while, Anderson-Reid continued to conduct business and delivered on every promise he and his staff made.
“The process was very frustrating and probably even agonizing, but the end result was really very good,” he says. “Because our underlying business had been operating so well during the period from 2000 to 2002, when we finalized the agreement, and because we had gained the trust of our bankers and bondholders during the negotiations by meeting our commitments and doing exactly what we said we were going to do, the final restructuring agreement was unanimous. There were no disagreements; everybody got paid.”
That agreement allowed Dade Behring to implement debt restructuring through a prepackaged Chapter 11, which the company was able to do in 60 days.
“We cut our debt in half, retained some tremendous tax advantages and emerged as a public company,” Reid-Anderson says. “We used this prepackaged Chapter 11 voluntarily in order to retain these benefits that we would otherwise have lost.”
The company gained internally, as well. Before the restructuring, employee turnover was at 20 percent. Two years later, that figure dropped to 4 percent. To ensure that doesn’t go back up, Reid-Anderson implemented an annual employee survey and conducted the first just as the company was completing its Chapter 11 process.
“We expected it to be pretty rough,” he says. “We were astonished when we found that not only did we outperform the average for the (survey company) Hay Group, we outperformed their average for all companies. What was astonishing to us was that we outperformed their Top 20 high-performing companies in every area except benefits. We set out over the last two years to look at the areas we thought we could improve.”
Healthy once again
Reid-Anderson took Dade Behring public shortly after it emerged from its Chapter 11 process.
“Our stock price in the last two years has quadrupled,” he says. “We have continued to grow profitably quarter after quarter, and our customer satisfaction rates across the world are at all-time highs.”
The company has since halved its debt again, including $40 million in debt payments the first two months of this year.
Despite the turmoil, Reid-Anderson says he has gained from the experience.
“The benefit of having gone through what we went
th
rough is a very, very cautious approach to ever being in a position where we take on too much debt,” he says. “If we do something, you would have to have a great deal of belief that it was absolutely the right thing to do.”
Reid-Anderson’s skills were honed over the years by a number of executive positions with companies including Wilson Sporting Goods and PepsiCo. Each experience helped prepare him for his current role.
“I think it gave me a very good, fundamental understanding of the theory of business,” he says. “I was fortunate that in all the companies that I worked with, I had bosses who were willing to run a risk with me and invariably give me projects or roles that had operational responsibility. So, no matter where I’ve been in the last 20 years, I’ve had a financial responsibility, but I’ve been either running businesses or special projects that impacted businesses. It really helped me get an understanding of how a business works.
“I think it is important for a CEO to be multidimensional and to have sat in a number of chairs throughout his or her career,” he says. “I was fortunate enough to have done that.”
And he has passed those lessons along.
“The folks here have learned over a number of years how to do it right, and we will not make mistakes in the future in this area.”
One way to ensure that the same mistakes don’t happen again was the creation of an entirely new board of directors, a move Reid-Anderson describes as “absolutely critical” to the company’s future success.
“Before going public, I was doing a fair amount of work on governance,” he says. “I was reading a lot about what was going on in the market. You had Enron; you had a number of things going on at that time. I was taking the opportunity to learn what a great public company should look like.
“It became clear to me that we needed a new board of directors. That board should be independent, and we should really think very carefully about the caliber of individuals on that board and the skills that they brought to the board.”
The board isn’t the only part of the organization that has changed. Reid-Anderson has learned a great deal from the experience in the last few years.
“When I look in the mirror in the morning, I feel fantastic,” he says. “And the reason that I do is I love my job. I love my job because not only do I have the opportunity to be part of company that helps save lives and cut costs in healthcare, but in addition, I work with a great bunch of people. I work in a company where people have fun, respect each other and just do a great job.
“When I get up in the morning, I’m going to work; I’m helping to save lives.”
And for that Reid-Anderson doesn’t need a cure.
HOW TO REACH: Dade Behring, www.dadebehring.com or (847) 267-5300
