kapstone cio insights

© 2010 WinWire TechnologiesWinWire Technologies, Inc. Confidential

Leveraging Microsoft Technologies to Enable M&A Growth

By

Christophe DeslandesChief Information Officer

KapStone


About

KapStone was started as a Special Purpose Acquisition Corporation (SPAC) for the purpose of building a domestic paper-and-packaging business through acquisitions.

Stated goal to grow to $2B - $5B range within 2-5 years.


KapStone Today

● 2 Kraft paper mills+ 1 lumber mill

● Headquartered near Chicago● Publicly traded on NYSE● ± $800MM revenue● 1,600 employees

● IT team: 30 full-time, 39 FTE


KapStone Timeline

4

2005 2006 2007 2008 2009 2010 2011

FoundedAs S.P.A.C.

FirstAcquisition

SecondAcquisition Small

Divestiture

ERPGoesLive Corporate

AppsComplete

ThirdAcquisition?

ERPProjectBegins

ERPUpgrade

ListedNASDAQ

ListedNYSE


Part 1

Building a Company


Initial Challenges

As of Jan 1, 2007:

$270MM business

No IT infrastructure of our own

18 months to migrate from seller’s systems

IT staff: 7 + 1 non-IT transition manager

Most applications already selected but no plan to integrate them

Challenge: traditional ERP model doesn’t fits well in a process industry


Leading industry-specific apps for proprietary processes• OE/MES, CMMS, wood

procurement, lumber mill, costing, CRM

Standardize on Microsoft stack• Logical choice given our

Microsoft ERP• MS Dynamics AX ERP for

standardized processes• Financials, HR,

corporate purchasing, discrete manufacturing

Build a strong system integration practice• To integrate our apps• To migrate our

acquisitions

KapStone’s Approach

Collaboration and Analytics Backbone


Configuration

Technology Stack

ERP CMMSOE/MES FiberCRM Lumber

Presentation, BI, DMS & Collaboration

Orchestration

DBMS/BI

Platform

http://iom.invensys.com/EN

http://www.progressive-solutions.com/

http://www.microsoft.com/visualstudio/en-us


Risk Mitigation

To facilitate system integration, we enforced the following requirements for our apps:

Windows®-basedSQL Server®-basedActive Directory authenticationRobust integration layer (BizTalk, SOAP or XML preferred)For cloud services: SOAP/XML interfacing

Clearly define the process boundaries between systemsi.e. once a transaction becomes $$$, feed to ERP!

Maximize support from Microsoft


All interfacing and integration is done through BizTalk Server.We support a variety of formats.

BANKS

System Integration Model

ERP

CMMS

OE/MES

Fiber

CRM

LumberRail

EDI VAN

XMLXML/MSMQ

XML

Text Files

XML

BizT

alk

Conn

ecto

r

X12

BizTalk

Connector

Bus. Activity Monitoring

Leverage BizTalk BAM to create self-service interface management portals for end users.

XML

https://www.pnc.com/webapp/unsec/Gateway.do?siteArea=/PNC/Home/Gateway



http://www.gxs.com/

https://www.bankofamerica.com/

https://fxtrade.oanda.com/


What About the Front End?

● Integrating multiple apps has many advantages:– Flexibility– No or little customization– Easy to upgrade

● And one big disadvantage:– Multiple, loosely linked reporting sources


Reporting Approach

Like most companies, we start with static reporting, but also…

● Document the app’s data dictionary & build views● Leverage the static reporting work to build BI cubes● Involve the vendor in cube design (or use theirs first!)● Bring in experts to design cubes as needed

ERP/CRM must be system of reference Common taxonomy is paramount!


PerformancePoint

Our Journey into BI

ERP

CMMS

OE/MES

Fiber

Lumber

SSRS

1 – Started with static reporting – documented data dictionary!2 – Built OLAP cubes for each app (or used vendor’s)3 – All cubes are based on SQL/SSRS4 – Support various reporting technologies5 - Migrate to dynamic reporting in SharePoint

http://i.ehow.com/images/a06/hq/6t/sql-server-cube-tutorial-800X800.jpg







© 2010 WinWire TechnologiesWinWire Technologies, Inc. ConfidentialActive Directory

Customer-Facing Infrastructure

SSRS

1-waytrust

replication

auth.

Active Directory

data

customer-sideintegrationplatform

customer

DMZ

webservices

transactions

Active Directory






Benefits of KapStone’s Approach

● Cost competitive:– SAP: $5,537/user/year1

– KapStone: $2,371/user/year2

● Upgradable:– Little customization = quick, cost effective upgrades

Upgraded AX in under 6 months in 2009– Any system can be replaced or upgraded without affecting others

● Agile:– Ability to add new systems quickly

Added Avantis in 6 months in 2009– Ability to integrate new acquisitions

Sources: (1) Panaya Inc. 2009 SAP® Support Practices Benchmark Survey(2) KapStone 2009 ERP support budget exclusive of depreciation


Part 2

Support Growth Through M&A


The M&A Market is Heating Up

“The volume of mergers and acquisitions grew in 2010 by 25%.(…) A survey of top bankers (…) expect deal volume to increase by at least 15% in 2011 from the previous year.”The Wall Street Journal, January 3, 2011


M&A Challenges: 10 Things to Remember

Typical M&A challenges for IT:1. IT isn’t always “in the loop”2. Acquisitions are often behind on IT investments3. Pressure to get off seller’s systems quickly4. Pressure to consolidate financials & BI quickly5. Don’t always know where IT growth will be6. Manage Communication7. Security is a big concern8. IT must take the lead on non-IT activities9. Must be compliant within 12 months10. Acquisitions lead to divestitures


1. IT isn’t always “in the loop”

Too often CIOs are not brought in early enough when a deal is negotiated.

Tell your Board and CEO that you must be brought in Day One. Ask them if they’d want to know the true cost of merging IT

asset before or after negotiating a price! Be ready with:

– migration cost models– system documentation (especially interfacing)– methodologies– app & technologies portfolio– standards


2. Acquisitions are often behind on IT investments

Businesses being sold tend not to invest much in IT!

Be ready to upgrade servers right away Be ready to roll out new desktops (real or virtual) right away Acquisitions are a good opportunity to get out of unwanted

support contracts upgrade Day One!

Technologies to leverage:Hyper-V server virtualization, Terminal

Services, desktop virtualization


3. Pressure to get off seller’s systems quickly

In case of a divestiture, some apps may be running on the seller’s infrastructure.TSAs are costly.

Negotiate rights to transfer licenses or run temporary instances Go after low hanging fruits (email, DMS) Migrate legacy apps to virtual instances in your datacenter Technologies to leverage:

Hyper-V virtualization


4. Pressure to consolidate financials & BI quickly

Consolidation of financials and operating KPI are essential.

Aim for Day 30 Upgrade from Excel-based consolidation:

Leverage middleware Automate consolidation (at least on your end)

Technologies to leverage: BizTalk, SQL Server, SharePoint


5. Don’t always know where IT growth will be

What will grow the most: email? Storage? Transactions? Network? Apps? Desktops?

Buy yourself flexibility ahead of time with clustering: Exchange BizTalk SQL Server Terminal Server Hyper-V consoles(you can have a 1-node cluster!)

Virtualize all other apps for easier migration to bigger hardware


6. Manage Communication

Loose lips sink ships – and acquisitions!People recognize due diligence when they see itKeep them in the loop but control leaks Social media isn’t making this any easierNegotiate a communications plan with the CEO

The IT staff will be very concerned about their futureCommunicate honestlyCommunicate early and often Listen to their concernsExplain that there will be changes and whyMake the case for delayed downsizing


7. Security is a BIG concern

Security practices may not be up to your standards.Some employees may be disgruntled.

Insist on antivirus being up to date as a condition of sale Lay down the law on Day One:

Password complexity rules Computer Use policy Firewall rules Server protection & configuration management

Engage an independent security auditor Technologies to leverage:

SCCM, Forefront Protection Server Script Kit, Visual Studio TFS


8. IT must take the lead on non-IT activities

Many non-IT M&A activities result in IT work:– merging COA– AP, AR, HR, CRM ETL– customer & item masters

If not coordinated, this results in headache and rework for all

IT PMO should volunteer PM leadership Share your collaboration tools with the other departments Provide testing sandboxes Technologies to leverage:

SharePoint, Hyper-V virtualization, MS Project


9. Must be compliant within 12 months

Pick your poison: SOX, PCI, HIPAA, SEC, …You’ll have at most 12 months for the new unit to be compliant!

Plan for robust and well documented integration, even if temporary

Implement Change Management, Access Control and Configuration Management policies on Day One

Technologies to leverage: BizTalk Server, SCCM, Visual Studio TFS


10. Acquisitions lead to divestitures

Acquisitions often lead to divestitures:– due to regulatory constraints– to finance M&A activities– for business alignment

Plan for future divestitures: Have a methodology! Virtualize divisional apps and integrate them through

middleware to allow for easy decommissioning Technologies to leverage:

BizTalk, Hyper-V virtualization


Key Takeaways

● Build a flexible infrastructure● Know your systems and know your cost structure● IT must take a leading role in M&A activities● Leverage your existing infrastructure to quickly and painlessly

absorb acquisitions

kapstone cio insights

Technology

biztalk server

multiple apps

reporting approachlike

static reporting work

linked reporting sources

system of reference

leverage biztalk bam

apps data dictionary