Interview with Lewa CEO Bernd Stütz

Bernd Stütz joined the management team only a few months after Lewa changed hands in 2005. What he brought with him were international experience, new momentum and the courage to implement innovative ideas. The company’s employees were quick to embrace the new corporate philosophy.

Lewa in 2005, Lewa at year-end 2009 – what are the greatest changes after four years of private equity involvement?

Stütz: Three things stand out. First, we started off as a pump manufacturer and became a  solutions provider, which makes us a more valuable partner and means we are no longer that easy to substitute. Second, Lewa’s performance has always been good, but we’ve improved it significantly – something that is important when weathering times of crisis like these. Finally, we now operate in additional business areas, which bring new opportunities for growth. We would not have achieved this progress without the momentum generated by the change in ownership in 2005 – at least not to this extent.

What exactly led to the financial investors’ entry?

Stütz: Lewa was a healthy German mid-sized company. It was focused on developing its products, but beyond that was not very ambitious and left much of its potential unused. By inquiring about strategy and business plans, the new owners triggered a change in corporate culture …

… which the management team then had to implement?

Stütz: Dr Höhler, my colleague on the team, and I needed no convincing. When I came to Lewa at the time the financial investors took over, we recognised that it would do Lewa good to not only have an eye on technology, but to develop a more market and client-centric approach.

How did you accomplish that?

Stütz: If you continue to do things as in the past, you will never achieve any new goals. In other words, we had to change processes. To achieve such a cultural shift, we had to make a few changes in management, which is probably easier to do in partnership with a financial investor than in a family-run business. The colleagues we hired consider Lewa ‘their’ company, which they want to see grow. We wanted to become more assertive and accomplish things that had not been done at Lewa before.

For instance?

Stütz: Our pumps are an ideal fit for the oil and gas industries. To succeed there, you have to be on-site with your sales and service organisation. We therefore expanded our presence in global markets and became more aggressive in pursuing projects. We realised that we needed to take our specialised expertise and make a profitable business out of it. We needed to offer our know-how in markets not served in the past and communicate our proposition to potential users in those markets.

How much time did that require?

Stütz: Naturally, it did not happen overnight. It was the result of a systematic strategic process we called ‘Lewa FIT’, whose individual components were spelled out in a 184-page document. I knew that with more than 100 engineers, Lewa had the highly skilled and qualified staff for implementing change. The company had a huge amount of unused potential. To tap it, we used numerous smaller projects to change the way we work together.

Which aspects were particularly important?

Stütz: Fundamentally changing inter-company communications – across all levels – was crucial, since it was the only way to access our staff’s unused potential. We now talk to each other much more than before, and we do so across departmental lines. The works council now receives more information than it requests. I myself spend entire days with our trainees and get to talk directly with our employees at all levels

“It’s good that we talked” may be nice, but alone will not generate higher sales or increased earnings …

Stütz: True, but it lays the foundation for that. In early 2006, we created “profit teams”. Two or three people on each team looked at certain types of costs within the company and asked how they could be sustainably reduced. This only works if you introduce brainstorming sessions and build a corporate culture of open communication that allows questions to be asked, without the answers always being predetermined. The profit teams still exist today. We gained a lot from them, in addition to cutting costs. They helped us transform our employees into active participants in our corporate processes – something that has raised motivation levels as a result.

We have also implemented these ideas in our production and assembly teams. Today, production employees are fully responsible for a given order – from assorting the parts and assembling the components to testing the finished product. That promotes a great sense of responsibility.

Professional qualification is another area we focus on. As part of Lewa FIT, we founded Lewa Academy – a simple, yet effective organisational superstructure for offering training courses and seminars. Although the costs are considerable, we believe it is a very profitable investment. Formerly, there were five courses offered in the company, today there are 50. Every Lewa employee has been given a “Passport to Quality”, which certifies every course he or she has taken. Employees then receive a bonus after they have earned a certain number of credentials.

How have the financial investors contributed to Lewa’s success?

Stütz: By insisting on high levels of transparency and stringent corporate governance – both of which have helped us to develop further. Another important contribution stems from their business model – acquiring companies using leveraged finance – since it means ensuring sufficient liquidity is on hand to meet financial obligations. That takes discipline and, in our case, caused us to change our focus and dramatically improve our working capital. This alone increases efficiency.

Is pressure from investors therefore the secret to success?

Stütz: No, not at all. Our investors supported us in implementing our strategy and did not insist on constant payouts. We always had the funds we needed – to internationalise our sales organisation, for example. We were also able to acquire a company in Norway and in North America and establish joint ventures, as we did in Asia. Moreover, we increased our R&D expenditures considerably and developed new products – not to mention the investments in staff I’ve already discussed. Beyond that, we added 40 new employees during that time. The investors supported us 100 percent, but did not intervene in the operating side of our business.

Every investment is preceded by an in-depth due diligence process that examines financial, commercial and strategic issues. The process also includes strategic discussions with management, whom we strive to advise and support in pursuit of our common goal: to lead the company to a profitable future.

You have worked for major corporations, family-run businesses and, now, financial investors. From your point of view, what are the main differences?

Stütz: In a large corporation, politics is often a consideration; you need to be aware of internal trends and make compromises – something that often requires taking the long way round. In family companies run by the owner, things are often not managed as optimally as they could be. In my experience, financial investors combine positive aspects of both worlds: a systematic focus on performance and an unwavering concern for the company itself. In other words, entrepreneurship, pure and simple.

How did co-investing in the company influence your own efforts?

Stütz: In virtually all cases – let’s say about 95 percent of the time – I would not have acted otherwise, had I not bought into the company. But it contributed enormously to my credibility vis-à-vis the staff, since they liked the fact that there was again someone at the top who was risking his own money when taking decisions and expecting things of others. As a buyout manager you are not only the CEO, but a managing partner – and that sends an important message.

How do you see Lewa’s future now under Nikkiso’s ownership?

Stütz: I am very, very confident things will go well. The new ownership gives Lewa the opportunity to become the true market leader for high-end metering pump solutions.

That sounds very optimistic.

Stütz: Yes it does, and we have every reason to be optimistic. Lewa has undergone an extensive efficiency-enhancement process, which the financial investors initiated and promoted. We are in a much better position and can operate a lot more self-confidently. The experience that our employees gained during the process has made them and the company stronger, something that is clearly demonstrated by the recent sale. All prospective buyers who talked to us were not only impressed by the hard facts, such as our products and our market presence, but by the soft factors as well – our finely-tuned strategy, effective internal communications, highly qualified personnel and people-first corporate culture. The value of these assets was reflected in the price the new owners were willing to pay.

Development of sales in
€mn

Lewa has developed considerably over the past four years – from a pump manufacturer to a solutions provider. Moreover, our plant construction activities give us a new strategic direction, and in Nikkiso we have found a partner who is very open to our ideas.

What does that mean on a practical level?

Stütz: For example, we are talking to Nikkiso about relocating a number of products and their production from Japan to Leonberg. We would then be the sole manufacturer of diaphragm pumps in the group. Through Nikkiso, our new owner, a number of gaps in our sales network will be closed. We will gain access to the markets in Japan and in neighbouring countries – an enormous potential. Finally, our extensive sales network will now be able to offer the complete Nikkiso product range – greatly enhancing the attractiveness of our offerings. It may sound trite, but I see a situation here where everyone wins.