VideoThe benefits of going public are certainly obvious for the Principal Financial Group, the huge 401(k) services provider and life and health insurer.
In changing from a mutual to a stock-company structure, as it plans to do, the Principal could gain capital to expand globally and develop technology to help it stay competitive domestically.
Not as obvious, but formidable in itself, is the downside of going public. How do you cope with demands for financial data that you never had to comply with before?
Not to worry. Mike Gersie, the CFO and executive vice president of Des Moines, Iowa-based Principal, has been championing a corporate "financial transformation project" costing tens of millions of dollars. The project is aimed at readying Principal's ability to cope with Reg FD and other reporting challenges.
"We've spent a lot of time building infrastructure over the last three years," says Gersie, who jokes that, in the runup to demutualization, he's become "an old 52."
Gersie, who's been with the company for 31 years in a variety of jobs, including heading up information services and new-business development, can truly be called a CFO of CFOs. He chairs a "CFO Council" consisting of the nine finance chiefs who oversee the company's major business units, plus the CFOs of Principal's information-technology and administrative-services operations.
Meeting once a month, the council ponders policy issues that may include the financial performance of the organization, its planning and modeling, and its need to build infrastructure, according to Gersie.
One level down, the CFO says, there's also a "Comptrollers Council," representing the company's accountants and actuaries, that "really rolls up its sleeves and delves into accounting issues" like amortization, materiality, and the details of acquisitions.
Both councils have been preoccupied with the Principal's revamping of its financial data-gathering and reporting operations.
Already about half way through the effort, Principal is retooling its processes and procedures for gathering, modeling, forecasting, analyzing, and communicating its financial and business data in anticipation of the demutualization and the IPO, Gersie says.
On May 29, the 120-year-old company announced it had filed its plan of demutualization with the Iowa insurance commissioner.
The latest in a surge of insurance demutualizations that has included John Hancock, MetLife, Prudential, and Liberty Mutual, the Principal's move includes distribution of 100 percent of the pre-IPO value of the company to eligible Principal insurance policyholders. For more on demutualization, click here.
Like other financial-services companies, Principal is looking to the capital markets to help it keep pace with domestic competition and to expand in Asia and elsewhere abroad, especially in countries where deregulation of state-run retirement systems offers opportunities for growth.
In terms of its 401(k) business, Principal sees its domestic "sweet spot" as employers in the range of 100 to 500 employees, and it plans to pursue that business globally, although the size of the target- employers may vary in different countries, according to Gersie.
Domestically, the company is, arguably, the biggest provider of services to 401(k) plans. In 2000, Principal provided services to 31,792 401(k) plans, more than any other services provider, according to the 2001 CFO 401(k) Providers Buyer's Guide.
Going public might also help the company boost its current $350 million IT budget, improving its ability to compete on the E-commerce front, Gersie says.
On June 8, Principal said it had filed a registration statement of its proposed IPO with the Securities and Exchange Commission. Slated for late 2001 or early 2002, the IPO will consist of about 109.5 million shares at $19 per share. At that rate, the offering's net proceeds will be about $2 billion, or $2.29 billion if the underwriters fully exercise their option to buy added shares.
In preparation for the IPO, Principal has been revamping the management of its financial data in a four-pronged effort that includes building a data warehouse, a new forecasting and planning model, new analysis tools, and an investor-relations function that's fit for The Street. In interviews with CFO.com, Gersie outlined the key parts of the program: 1. Data warehouse.Starting in early 2000, Principal has been developing its financial data-gathering efforts in phases. Gersie says the first phase, completed in mid-2000, sought to enable the company "to hold all the information and slice and dice the information we would need for public reporting."
In the first phase, the company's goal was "to have a single source of truth," the CFO says. "You don't want [data] scattered in three places and perhaps have it misinterpreted."
Principal has thus gathered in the data- warehouse its planned and actual financials, including income statements, assets under management, "and anything we report externally," Gersie says. (The company has already done some public reporting in connection with its issuance of 144(a) corporate debt.)
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