Legal job cuts, reining in signing authorities and equipment audits are some of the cost-cutting tactics that helped SS&C Technologies founder Bill Stone double the profitability of DST Systems since he bought it last year.
Speaking at the Citi 2019 Financial Technology Conference on Nov. 12, CEO and Chairman Stone laid out the steps he has taken to increase profitability and revenues across previous acquisition businesses, specifically the DST unit that his firm purchased at the start of 2018.
“Our mission statement is: Make more money,” Stone said. “Do you know how to make more money? You get happy customers. This isn’t magic, it’s management. It’s just beating that drum again and again, learning your times tables.”
SS&C finalized its $5.4bn acquisition of DST in January 2018, adding on 14,400 employees and 2,100 contractors. While the DST business was one of the most talked about acquisitions that SS&C made last year, the firm’s revenues fell short of target growth projections in the second quarter, prompting concern among Stone and other executives.
Stone has implemented a number of internal changes from the firm’s selling and legal process to spending habits.
“We found a $7m piece of equipment in one of their data centers. We just found it. It hadn’t been deployed, [it] was just sitting there for nine months,” Stone said. “At SS&C, there’d be four heart attacks if something like that happened.”
So far, those changes have worked even if earnings have fallen short of target. In April 2018, DST was doing approximately $400m in EBITA, and is now doing approximately $800m in EBITA, according to Stone.
“You know how long it would take me to earn $400m in EBITA [organically]?” Stone asked the crowd. “Even the youngest person in this room would be retired by then.”
DST is the only one of SS&C’s three main acquisitions from 2018 that has yet to change leadership.
In September, Leif O’Leary announced plans to leave his post as CEO of Intralinks, and has since been replaced by Chief Revenue Officer Bob Petrocchi and Chief Product Officer Ken Bisconti as co-heads of the business. Eze Software also lost its top exec in the quarter, with SVP and general manager Jeff Shoreman announcing plans to leave the firm on Nov. 15. Shoreman will be replaced by current Global Head of Sales Michael Hutner.
DST Systems CEO Stephen Hooley joined the Legg Mason board in May alongside Trian Fund Management CEO Nelson Peltz, its CIO Ed Garden.
Within the DST business, Stone has reduced the firm’s internal counsel count from 100 down to 30.
“Contracts used to go the DST legal department and wouldn’t come out for 100 days,” Stone said. “At SS&C it takes about 20 days, and salespeople still bitch all the time.”
Stone also stepped in following the DST acquisition and downgraded the signing authority for most of the team members. When DST first joined SS&C, seven executives had million-dollar signing authorities, and each had seven individuals working for them with $500,000 signing authorities. Stone’s first move was to push that maximum signing authority down to $5,000 per person. He has since increased that ceiling to approximately $25,000, noting that too high signing authority levels can create a false sense of stability and allow for excess spending.
“Spend it like it’s your money and quit acting like if you buy 20 things at $50,000 [it doesn’t matter],” he said. “I think people would really prefer a bigger bonus and a smaller signing authority.”
Another part of Stone’s retention practice, which can be notoriously muddy following M&A, is to make sure that employees have the opportunity to purchase equity in the firm.
“Some of them have equity in those options that are five times what they earn in a year. It changes people’s lives for the better, and creates loyalty,” Stone added.
When asked by moderator Andrew Schmidt, an equity research analyst at Citi, whether there were any sizeable deals on the table following a period of rest at the Windsor, Connecticut-based firm, Stone did not rule out more deals in the near term.
“There are,” Stone said. “It takes two to tango. You have to do these acquisitions to get the scale. I think we’ll do $1.2bn in cash flow from operations this year. Do you know what you can do with [$1.2bn]? Have a great party. There’s just all that flexibility. You can make bets. All of them don’t have to work. Make some mistakes. You don’t want to bet the company. You bet the company, you lose the company.”