As a mid-market private equity backed company approaches its exit, one key factor that can significantly increase enterprise value is a well-executed and well-timed strategic sourcing/procurement project. When nearing the end of a PE hold, a strategic sourcing engagement can help reduce costs, improve efficiency, and enhance supply chain resilience, which can all positively impact enterprise value.
Here are a few ways in which a strategic sourcing/procurement project pre-exit can meaningfully increase enterprise value for a mid-market private equity backed company:
Ultimately, a well-executed strategic sourcing/procurement project pre-exit can significantly increase enterprise value for a mid-market portco. By focusing on cost savings, operational efficiencies, risk mitigation, supplier relationships, innovation, and data analytics, a company can demonstrate to potential buyers that it has a well-managed and financially stable supply chain that is poised for future growth.
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The past six months have been an interesting time for Private equity firms. A deal environment that was overflowing with exits and closes not long ago has come to a grinding slow down. Contributing factors such as interest rate increases, multiples coming back down to earth, and a pullback from LPs have all led to deal teams with more time on their hands and a renewed focus on current holdings. These current holdings are, in many instances, facing headwinds of their own as demand has slowed amid the economic downturn here in 2023. This had led GPs to spend more time focusing on the operational health of their portfolios and implementing additional workstreams to drive efficiencies. The more that can be done to generate EBITDA improvement outside of headcount reduction, the better. One way PE firms have combatted these headwinds is to deploy a firm like Treya into their portfolio companies to align with management and execute a strategic sourcing project. Improved commercial terms with vendors, risk mitigation, and internal capability development are the main outcomes of this type of work
In conclusion, strategic sourcing is an essential tool for private equity firms and portfolio companies to prioritize, especially during periods of economic uncertainty and slowing demand where we find ourselves today. By reducing costs, mitigating risk, creating value, and developing internal procurement capability, strategic sourcing can help private equity firms maximize their returns on investment and achieve long-term success. By Chris Tasiopoulos |
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