Top tips to get ready for the holiday season. It's the most magical time of year. But also the most demanding. The enclosed slideshow shares several tips to prepare for peak and also includes the UPS year end holiday schedule. UPS is expecting the busiest day to be Wednesday December 1st following the surge of Black Friday and Cyber Monday online shopping.
Poor performance during holiday peak for e-commerce companies can impact revenue far beyond the holiday season, with the primary driver of customer experience being timely order fulfillment. Historically, November 28th to December 24th marked the peak season for shipping for small parcel carriers across the globe. A study on 2021 peak season emphasized the change in peak season - it now begins earlier and last longer, with 35% of consumers starting their holiday shopping earlier and 45% reporting they finished their shopping before December.
It is estimated that approximately 3 billion packages are shipped across the carriers’ networks during this time period and the most crucial statistic during the peak season is on-time performance. In this article, we will dive deeper into what Private Equity firms and their e-commerce portfolio companies are doing to plan for this year’s peak season.
We will cover common challenges and issues that e-commerce companies will encounter in the 2022 peak holiday season and how to layout a plan to reduce fulfillment challenges, thereby driving higher customer satisfaction and securing revenue both for today and the future. We will share thoughts on optimizing peak season small parcel shipping within Private Equity portfolio companies from industry experts to help ease the stress around peak season shipping.
Challenges and Issues:
E-commerce companies looking to out-perform their competitors must now manage a volatile supply chain, challenges with maintaining sufficient inventory, and the rising cost of shipments. As we approach the peak holiday season, the shipping experience will be more important to companies’ bottom lines and brand reputations than ever before. Research by Oracle found that 74% of senior executives believe that good customer experience directly impacts customer retention.
According to Esteban Kolsky, 72% of customers will share a positive experience with 6 or more people. On the other hand, if a customer is not happy, 13% of them will share their experience with 15 or more people. The challenge here lies in the fact that, in most cases, customers don’t tell you they’re unhappy. In fact, only 1 in 26 unhappy customers actually complains.
With increased competition and the knowledge that the majority of unhappy customers do not provide feedback, the need to win the customer experience battle is elevated during holiday peak for the e-commerce sector.
In order to exceed customer expectations during the 2022 holiday season, e-commerce companies must address many challenges, with an emphasis on the customer experience once the package leaves their facility.
Here are some common challenges and issues facing the e-commerce sector this holiday season:
If these types of challenges and issues are not proactively addressed, both the immediate and long term impact to revenue and brand can be catastrophic. The greatest impact of holiday peak shipping issues is a loss of revenue that extends beyond the holidays. A poor customer experience during the stressful holiday season results in orders being cancelled, loss of repeat customer orders, and damage to reputation and brand stemming from social media posts by dissatisfied customers.
A Guide to Planning for Peak Season Small Parcel Shipping:
Meeting consumer expectations for delivery is key to building customer loyalty, as 79% of consumers are more likely to make a second purchase from a merchant after a positive delivery experience.
The first step, when it comes to peak season parcel shipping, is to get ahead. According to Steve Denton, CEO of Ware2Go, “The good news, as we head into peak, is that we’re in better shape then we were this time last year. The supply chain has loosened up a little bit.” Denton recommends shoring up your labor strategy by getting a handle on your demand forecasting and inventory planning as well as liquidating inventory that is not turning ahead of peak.
We have asked our Private Equity customers what they are doing to prepare for peak season and assess weak points or potential issues within their current shipping environment:
For us, 2021 Peak prep included establishing and deepening our parcel relationships. With our partners, we were able to service our customers more adequately with better parcel pricing from our existing carriers, as well as leverage new partners for analysis to establish new parcel agreements. With our full suite of partners, we were able to both deepen and widen our parcel solutions for customers during the 2021 peak. (Jeremy Evans, Boutique Brands)
As companies move into the prepping stage for peak season shipping, it’s important to continually monitor processes and systems internally to ensure efficiencies from when an order is placed on the website all the way through delivery. One way to evaluate your current situation is to assess if your current carrier is fully meeting your business needs – if not, onboarding a new carrier is a great way to put processes and systems in place with a clean slate. Taking stock and evaluating current performance leading up to peak season will help identify vulnerabilities and potential challenges with higher volumes.
Capitalize on Available Resources
Though it may seem there are no additional resources for your particular company, there are subject matter experts, software, carriers, and third party providers to take advantage of as you develop the roadmap for a more successful small parcel program.
Some things to consider when looking for additional resources when it comes to small parcel shipping are:
There are a variety of resources available to you to make sure you are optimizing your small parcel shipments and creating a solid foundation from a systems and process standpoint.
Have a Plan!
As we close in on peak season parcel shipping, having a plan can be the best way to ease concerns for your customers and internal workforce. One of the most critical ways to set expectations with your customers is to collaborate with your internal or external marketing team to advertise your delivery commitments and any potential promotions if customers were to buy from your business. This is one easy way to let customers know that you have a plan in place and guarantees that you can meet their needs when they order during this year’s peak season.
There is also planning around facilities or warehouses that needs to take place. A recent study reported that 57% of consumers surveyed made a purchase last year from a retailer they had never done business with before. 37% of those shoppers did so because their first-choice retailer was out of stock.
Does your facility have enough space for a potential increase in product warehousing needs? Is your carrier aware of the increased need for drivers for pickups or drop-offs? If there is an issue with pickup and drop off times, would adding an additional carrier help with the issues and needs of the facility? These are some of the questions that may need to be answered to ease some of the tension around the facility or warehouse and the carrier as we inch closer to the holiday peak season.
Unforeseen circumstances are also in the mix when planning for peak season. Are you in a climate that experiences heavy snow in the fall/winter months? What if a facility needs to close for power outages or maintenance issues? Asking “what if?” questions around all your parcel-related needs can help with finding solutions and having a backup plan if issues arise.
Chief Supply Chain Officer at Ware2Go, Chris Domby, offers the following advice for risk mitigation :
"When warehouse vacancy rates are low, it's very important to distribute your inventory across multiple warehouses, giving you a smaller footprint in expensive coastal markets. If you're looking for an alternative to Southern California, moving just a little further North into Central or Northern California, you're likely to find more available space. If you want to avoid the West Coast all together, the port of Houston is an attractive alternative, and container volume is on the rise there. Texas has a large population, and its central location reduces long zone shipping across the country. On the East Coast, there is higher capacity and excellent ground shipping coverage in the Tennessee, Virginia, and Atlanta markets." (Chris Domby, Ware2Go)
Planning for both increased demand and unforeseen circumstances is critical. Consider having multiple warehouses available to ship from or ship to for returns, or evaluate ramping up productivity within a certain warehouse where demand is going to be amplified. It is crucial for companies to explore these types of options before we enter the peak season shipping months.
Purchasing, Delivery Execution & Customer Service:
The last mile is quickly becoming the most important touchpoint in the customer experience and is often the area the merchant has the least amount of control. Overall, the shipping experience is becoming a larger pain point for both the merchant and the online shopper.
Data shows that the top reason a shopper will invest time to leave a negative review is if a package was damaged or never arrived. Among the top five reasons for leaving a bad review is that the shipment was delayed or took longer than expected.
Through timely planning, carrier partner selection and execution, the last mile can be an important differentiator for merchants.
When talking about the holiday peak season shipping, one aspect that is often overlooked is the importance of the return experience. Having a seamless and easy return process, along with a quality customer service experience, is valuable. From when a e-commerce customer adds a product to their cart, the experience from that point through delivery and a potential return is critical for customer retention and loyalty, and positive small parcel shipping experiences are a key part of the customer experience.
The positive customer experience is critical for companies as they work to meet or exceed expectations.
Alongside customer satisfaction with purchasing and delivery, the customer service and returns processes need to be strong in order to maximize customer satisfaction. Plan for returns the same way you are planning for delivery of your products, as this will also ease concerns for when peak season comes around.
We have been a leading provider of Procurement Improvement Services across the public and private sectors since 2006. Clients served include 15 state governments, multiple institutions of higher education, and over 60 private equity funds. We also hold the first and largest small parcel Group Purchasing Organization (GPO) with UPS to deliver savings for Private Equity and their portfolio companies through a PE volume leveraged program.
Annual inflation rate in the US slowed to 8.3% in April from a 41-year high of 8.5% in March, but less than market forecasts of 8.1%. Energy prices increased 30.3%, below 32% in March namely gasoline (43.6% vs 48%) while fuel oil increased more (80.5% vs 70.1%). On the other hand, food prices jumped 9.4%, the most since April 1981 and prices also rose faster for shelter (5.1% vs 5%) and new vehicles (13.2% vs 12.5%). On a monthly basis, consumer prices were up 0.3%, slightly more than expectations of 0.2% but below a 16-year high of 1.2% in March. The index for gasoline fell 6.1%, offsetting increases in the indexes for natural gas (3.1%) and electricity (0.7%). Despite the slowdown in April which suggests that inflation has probably peaked, the inflation is unlikely to fall to pre-pandemic levels any time soon and will remain above the Fed's 2% target for a long time as supply disruptions persist and energy and food prices remain elevated.
Inflation has been one of the important thoughts as PE firms invest in companies in an inflationary environment. Year over year, consumer prices have remained above 5% and since the last half of 2021 the price index has reached 7% and, in some markets, far past that. There is a light at the end of the tunnel as forecasts indicate that inflation has peaked and will trend downward over the next 12 months according to the U.S. Bureau of Labor Statistics. In a broader sense, the current U.S. economy has been struggling from global supply chain disruptions due to the pandemic and other worldwide struggles resulting in labor shortages as well as supply shortages in many in-demand materials. With this widespread supply chain issue in company’s minds, due diligence processes focused on risks including rising prices in labor, energy, and raw materials which is also top-of-mind for PE firms as these investors look to invest in companies with costs rising and margins diminishing within certain industries. Furthermore, there is the risk of decreasing valuation within Private Equity portfolio companies because of lower EBITDA due to the inflationary environment. Firms are encountering new challenges with investments/valuations and exits because of the decreasing EBITDA potential within the middle market. In a firm's current portfolio, holding periods could be longer than historical holds because of the lack of ROI upon exit leading to hopeful change in the economy which may come later than expected.
Within Private Equity, deal-making in inflationary environments vary by industry. Healthcare and the industrial sector have seen decreasing earnings in Q4 2021, between 4%-6% due to inflation and other pandemic-caused issues. Though the collective YoY revenue is a growth for both sectors mentioned, the decrease in earnings for Q4 2021 shows the rise in costs in labor and raw materials. With the decrease in earnings, companies have slowed production in order to keep costs down and be cognizant of the recovering economy. PE firms investing in middle-market companies are especially mindful of the high-growth investments where inflation may take away from the potential earnings and growth potential at this time where the economy is uncertain, and the price of goods are heightened.
Private Equity firms manage the existing portfolio, invest in new portfolio companies, and exit existing portfolio companies. In these phases of portfolio management, there is a constant reminder to execute on the value creation plan and navigate economic changes where upon exit, there is the highest valuation possible. With the current inflationary environment, portfolio management has their challenges because the value creation plan is either put on hold or takes longer to execute in order to yield the highest return upon exit. Though firms have their challenges within the portfolio, each company has their own set of challenges as well. Portfolio companies that have customers that pay for services or products have the option to increase the costs of goods or services to their customers. Another option for these companies is to find ways to save on the cost of goods or suppliers to keep revenue high and costs low.
With current and prospective investments within the middle-market, the importance of the due diligence processes heightens in order to combat some of the current pricing of goods within particular industries. During that process, current vendor contracts and vendor efficiency need to be made a priority in order to forecast and model future costs and create growth in earnings. Leveraging different value creation services and market research will bring potential growth to companies and sustain that growth throughout inflationary periods.
By: Ryan Peterson, Treya Partners Business Development Manager
Venture Capital had a record-breaking year in 2021 fueled by US VC backed companies who raised double the amount of 2020 and the highest deal activity level in history. With nearly $800 billion in exits alone in 2021, this was a momentous year for Venture Capital firms, investors, and founders. Taking a deeper dive into 2021, there was an increase in deal activity for companies with at least one female founder as well as overall deal activity for companies with all female founders. An exciting and record-breaking year for VC and female founders.
The US VC deal activity for companies with at least one female founder has been increasing throughout the past decade, but in 2021 we saw the highest deal activity and the highest deal value with the value almost 2x of 2020. One of the major reasons for this is because female founders have been steadily increasing year over year and we have seen more female founders making key market decisions in 2021 than we have seen in the past decade. With a higher deal volume count in the beginning half of 2021, VC firms were regaining footing and confidence to deploy capital after a cautionary period due to the pandemic and hoping to reap the benefits of high market prices later in the year.
We also looked into all female founded businesses to see how those numbers matched with the 2021 companies with at least one female founder. With the significant spike in deal count in 2021 for female founded businesses, we anticipate and hope the record-breaking year for 2021 is only the start for the booming US VC deal activity and female founded businesses activity will continue to increase as a percentage of the total deal activity in 2022 and beyond.
By: Ryan Peterson, Treya Partners Business Development Manager
In 2021, there was significant activity by Private Equity firms investing in healthcare companies alongside major industry activity and distributions. We saw an upward spike starting in 2019 in the national healthcare expenditure as a percentage of Gross Domestic Product that topped 20% as of December 31, 2020. There are a few factors shaping the upward trends in the healthcare industry with one of the major factors being the COVID-19 pandemic. The pandemic’s effect on the industry has been both positive and negative. The negative being that at the beginning of the pandemic, hospitals were struggling and costs for COVID-19 safety precautions were rising which made hospitals lose investors and revenue. As a whole, it was estimated that hospitals in the United States were losing $50 billion dollars a month due to COVID-19. Along with the hospitals losing $50 billion dollars a month, inflation took charge on prescriptions and vital over-the-counter medications. There were also minute clinics, primary care, and specialty care institutions that saw loss of revenue due to the patient’s fear of the virus itself. However, the good news was that once vaccines were created in early 2021, we saw an upward revenue trend in hospitals but also the mental health industry, veterinary services, and home care started on that trend as well. Once individuals received vaccinations and felt more comfortable leaving their residences in early 2021, revenues for hospitals increased close to pre-pandemic revenue along with other facets of healthcare increasing theirs.
In Private Equity, the number of deals in healthcare has nearly doubled since 2012 from approximately 500 to 1000 per year. COVID-19 was a factor in deal activity in 2021 within Healthcare IT, but through the past decade of deal activity 60% of the deals have been in Healthcare Services. Others sub-sectors include biotech & pharma, healthcare IT, healthcare devices, supplies, and business services. Deal activity in IT and Biotech in healthcare has increased in the past decade as new technology and innovation has taken place. Though it does not match the deal activity of healthcare services, they have remained strong in the past few years. With healthcare devices, we have seen low activity and steady investing within that space. Healthcare Biotech, IT, and devices are going to continue to grow in years to come with more innovative technologies on the horizon.
With the pandemic still present for the foreseeable future along with the rising costs of healthcare and aging population requiring more services and technology, PE firms have strategically invested into the healthcare sector with view of what is needed to prosper in a future healthcare disaster. With hospitals investing in better services, supplies, devices, and technology, firms can have an ease of mind when investing.
It will be interesting to see where the healthcare industry goes in 2022. We know that PE firms have an interest in this sector because of the large share it has in the economy, but the industry will need to continue to grow and create better outcomes for patients and providers for firms for future success.
By: Ryan Peterson, Treya Partners Business Development Manager
ESG (Environmental, Social & Governance) programs have been on the horizon as a commitment for Private Equity firms and portfolio companies for the last several years. However, in the latter half of 2021, we saw more funds launched to invest in sustainability, adjust their investment strategy to invest in companies that source strategically and responsibly for the future as well as invest time and resources in the evaluation and review of ESG programs across their active investments. The private equity and venture capital ESG leaders look to invest in companies that have goals of net-zero emissions, board & employee diversity, and employee & community engagement. Though these are only a few metrics that can be included in ESG commitments, there is a concrete encompassing idea that stakeholders want to invest in responsible companies.
When looking at ESG risk factor during the due diligence phase of any investment, a majority of firms have a framework in place to evaluate the key components while at the same time want to do more around ESG in the due diligence process. The minority of PE and VC firms that do not have a plan in place for ESG risk factor during the due diligence process face or will face external pressure from LPs to develop and deploy the process improvement. Additional pressure likely comes from regulatory bodies at the industry level or national level as we have seen in Europe. For the firms that do not have a process in place today, there is certainty that the pressures will build with impact on fundraising, relationship with debt providers, and reputation with operators.
Whether the objective is to target acquisitions that are net-zero companies or to help current investments source quality and more sustainable products & materials, there will be a push for firms to invest in ESG platforms that will be used for reporting and vetting current and future investments, respectively. If the investments do not meet the ESG standards, it is crucial that the investment team or committee clearly understand the areas that fall short, are able to develop high level plan to improve and have confidence in the operator’s ability to execute on the plan. Failure in any of these areas will have a material impact on exit value of the acquired company, return on the current fund and ability to increase size of the next fund.
When it comes to implementing ESG programs as the portfolio company level, there are some areas where there are more “ESG friendly” areas to impact and industries that are more capable of being considered environmentally and socially responsible. Other industries like oil and coal have many years before conditions are optimal for ESG standards, but still have an opportunity to develop and execute on an ESG plan to make incremental improvements.
Regardless of the industry mix of the portfolio for the Private Equity firm, there are risk factors that come with not constructing an ESG program or minimizing the value of an ESG program. In 2022, the PE firms that want to improve and expand ESG programs and frameworks will need to consider a few areas. One is creating a quality program that covers areas that are common to all holdings with flexibility and customization to meet the needs of a specific industry or to meet the portfolio company where they are. For it to be a quality program, firms need to look at environmental impacts based on specific portfolio company industry. Technology companies need to make improvements in the recycling of IT hardware, reduce power consumption at their data centers, and reduce the carbon footprint of each employee. Compared to manufacturing companies that focus on the sustainability of their suppliers, reduction of carbon emissions at their facilities and programs to offset emissions within their transportation network. The social initiatives programs should be evaluated closely to ensure they align with the organization and the employees. Local and regional initiatives are highly recommended to create direct connectivity between the employee and the initiative. Even though Governance is generally well addressed in the due diligence process by most PE firms, this area should not be taken for granted and will need ongoing reviews and monitoring to comply with the ESG program.
Another critical area for a best-in-class ESG program is the quality of data collection and reporting. The deployment of a data collection and reporting process or tool is the heartbeat of the program that keeps everything connected to it alive. Without a process or tool, even the most well thought out and comprehensive program will eventually die out or become so ineffective that all lose interest. Without benchmarking, standardized metrics, reporting on KPI’s and the simple tracking of process within ESG, all aspects of the program are weakened. To build quality metrics, there needs to be fast and easy data collection to ensure both the PE firm and portfolio companies maintain accurate data that tie into the overall ESG initiatives.
It will be interesting to see where every industry moves towards when talking about ESG as well as the thresholds for ESG standards when firms decide to invest and approach ESG programs and reporting with active investments.
By: Ryan Peterson, Treya Partners Business Development Manager
From a recent article written by the Wall Street Journal, firms have announced nearly $1 trillion ($944.4 billion) worth of deals in the U.S as of month ending September 2021 which include buyout deals as well as exits. This figure is 2.5 times the amount from the same time period in 2020. We will likely see new deal volume and exits increase through 2022 fueled by the current state of cash to deploy for equity investment and low interest rates on debt financing. When alluding to the increased buyout and exit activity in the Private Equity industry, we have also seen add-on’s increasing and as of September 30th, 2021, add-ons are at the highest level in history!
Add-ons accounted for 73.2% of US buyout activity in 2021. The total number of buyouts were 3,845 and of the total buyouts being completed in 2021, an impressive 2,814 were add-on’s leaving 1,031 non-add-on buyouts. At this pace, we can expect the final 2021 numbers to show a record high of buyout deals for the calendar year. We are seeing that add-on activity as a percentage is increasing partly due to Private Equity’s appetite in the past for platform investments that are driving add-on’s today, as well as the competitive environment forcing investors to put capital to work in areas like add-on’s that were not a traditional part of their investment strategy. In the end, it is hard to pinpoint exactly where the ambition comes from for these add-on deals. It is clear that add-ons as a percentage of the total deal volume is trending upward.
Further evidence that 2021 will be a record year is the following deal activity from Q3. The total deal count in Q3 was 2,227 creating the highest deal count in all of 2021. We are currently seeing a widespread distribution of deals in a variety of sectors including materials & resources, IT, healthcare, financial services, and energy. The reasoning behind most of the deals in Q3 being in these sectors could be because of the firm’s interest in more ESG related investments including strategic sourcing in materials, clean energy, and healthcare. With different trends entering the Private Equity space and encouragement from stakeholders to invest in strategic portfolio companies, the deal count is likely to rise in Q4 and in 2022.
With buyouts and add-on activity on the rise, firm’s internal resources to manage and execute on integrations and value creation plans will be stretched. In order to deliver on the investment thesis which may include capturing synergies from add-on’s, firms may need to onboard or expand their 3rd party service provider relationships to squeeze every bit of potential value out of these investments. The level activity combined with the current supply chain and labor constraints place an added burden on the teams and present an opportunity for the right partnerships to accomplish initiatives in areas such as sourcing of materials, transportation, and logistics solutions, along with the low hanging cost reduction opportunities in the portfolio to increase savings and efficiency across the board. With the add-on and buyout activity on the rise, it will be interesting to see where the final Q4 deal volume lands and what key indicators we can extract from 2021 to forecast trends for 2022.
By: Ryan Peterson, Treya Partners Business Development Manager
ESG (Environmental, Social and Governance) initiatives within Private Equity have become a crucial asset for the firms and their portfolio companies. Though these initiatives have been around for some time in other industries and public sector, we are currently seeing a gradual implementation of these ESG programs within Private Equity focusing on the firm’s values as well as shaping investment strategies.
After attending the PE Innovators in ESG virtual event, I have seen a mindset shift from Private Equity firms showing that investing in companies that are limiting their carbon footprint, growing their diversity and inclusion capacities, and implementing ESG solutions for reporting is becoming essential while maintaining growth within the firm and their portfolio companies.
When it comes to implementing these ESG programs, stakeholders have a major impact in contributing to these initiatives. Whether it is investing in ESG platforms or prioritizing programs to promote the ESG vision at a firm or a portfolio company, it all starts with the stakeholders. Including feedback from employees and/or customers in the decisions stakeholders make is critical to create a solid foundation in ESG initiatives across the firm. Our Co-Founder & Partner at Treya Partners, Rahul Ahuja, contributed to a conversation about ESG and the importance of stakeholder involvement which you can watch by via link below.
PE Innovators in ESG Speak: ESG Starts with Stakeholders Panel
By: Ryan Peterson, Treya Partners Business Development Manager
According to a recent article published in the Harvard Business Review, the Private Equity industry is navigating through its mid-life crisis. Per the HBR piece, a recent study found a meaningful drop in average buyout performance of six percentage points between the 10-year annualized return in 1999 and the comparable return in 2019. The challenges that face the industry are two-fold, both financial and operational. We still find ourselves in a seller’s market with multiples remaining at record highs and that, combined with a reduction in effectiveness of traditional PE financial tools (i.e., leverage and price arbitrage), has created an environment for PE where it is more difficult to maintain high performance levels. These financial head winds are being accelerated by operational inhibitors as well. HBR suggests that “Global competition and commoditization make it harder for products to command a premium price, which squeezes margins, and often a business’s easy-to-accomplish cost savings have already been collected by previous owners. A classic PE strategy — integrating small acquisitions into an existing business — still offers revenue growth and other benefits, but its popularity raises the prices of these acquisitions, so returns naturally fall”.
These factors and market conditions facing the Private Equity industry have forced firms to evolve in their thinking around value creation and where it can be generated for each of their investments. What we are seeing with many mid-market PE firms is that the traditional model of equipping former CXO’s with Operating Partner titles but deploying them in an advisor capacity is losing favor. More and more firms are creating Portfolio Operations teams comprised of former executives, consultants, and operators. The key difference in the Portfolio Operations model vs. the traditional Operating Partner model is that these folks are required to roll up their sleeves and get busy creating value, prioritizing initiatives, and achieving alignment with portco leadership. There are both specialist and generalist operations models that exist in mid-market PE and these teams are deployed across the portfolio to execute on Value Creation Plans (VCPs). These initiatives can range from ERP deployment to M&A synergy capture, to procurement. All of which are worked on in hopes to increase efficiencies within the investment and ultimately complete value that can no longer be attained through traditional measures mentioned in the first paragraph.
At Treya Partners, our work is oftentimes alongside mid-market portfolio operations teams. As portfolio operations practices mature across mid-market private equity, we expect to see a continued shift where teams will be comprised of more generalists who will then bring in trusted 3rd parties to serve as force multipliers on their initiatives. The PE operating model is continuing to evolve not only as to how the team is comprised, but also how they engage with portfolio companies. Working alongside executive teams and finding the right balance between creating value and finding alignment with portfolio company leadership is a major key to success for PE Operations teams. A Kearney study that polled PE backed CEOs was called out some best ways for PE operations teams to engage. Per the Kearney study, “The vast majority of CEOs (nearly 90 percent) think the PE operations team should get involved during the pre-acquisition due diligence phase. The rest want interaction to start as soon as practical after the transaction closes”. This is indicative of a conclusion that we at Treya Partners have drawn in assisting PE operations teams engage with their portfolio companies, assess their spend, and execute where opportunities exist alongside portco leadership. Our conclusion is that the sooner a PE operations team can get engaged and present value to a new investment, the better. It is crucial that value creation teams are engaging during this honeymoon phase where a company is going to be most willing to embrace the ways in which their new private equity ownership can immediately benefit from being a part of their new portfolio. The same Kearney study goes on to illustrate which initiatives portco CXO’s require the most support and where PE Operating Teams tend to deliver it:
Additionally, challenging the status quo and bringing fresh ideas to the table in a collaborative fashion has also shown to be strongly valued by CXO’s:
In our experience, a PE operating team bringing a new portfolio company on to Treya’s leveraged private equity small parcel contract shortly after onboarding has been an effective way to score a quick win and establish a collaborative relationship. Saving a company a few hundred thousand dollars with the stroke of a pen and minimal business disruption goes a long way to establishing credibility for a PE operating team and set the stage for future willingness to engage further at the portco level and leverage more of the value creation tools in the PE firm’s toolbox.
The continued maturation of the PE industry, combined with the increased competitiveness we are seeing in the deal markets, is going to force the hand of more and more firms to equip themselves with folks who are exclusively focused on creating value for their investments. It will be exciting to track the evolution of different funds that are different stages of this cycle. I would expect to see most mid-market firms with no dedicated operating teams begin bringing on operations focused individuals in house over the next 5 years. For those firms with existing PE operations teams, the maturation process will consist of continued work within their portfolios which will provide valuable lessons learned. I expect they will also work towards striking the most effective balance between building out in house resources and partnering with 3rd party resources to serve as arms and legs for certain initiatives. This is the function we at Treya Partners serve with most of our Private Equity clients. Most operating teams that we work with have realized they are most valuable and effective when working on high profile initiatives in collaboration with the Investment teams and they lean on trusted 3rd parties for projects that create value and with the right partner, can be repurposed over and over again within the portfolio to drive optimal value. We relish in our role as an extension of PE operating teams and are looking forward to next few years as more firms adopt this model and continue to fine tune the delicate art of PE operations.
By Chris Tasiopoulos
About the Author
Chris has over 5 years of management consulting, client relationship managment, and business development experience. In his role as Business Development Manager at Treya Partners, Chris is responsible for client relationship managment, Private Equity client cultivation, and development. Chris has led numerous strategic relationships and worked closely alongside both investment and Operations teams at Private Equity firms incluidng Waud Capital, Trive Capital, Trivest Capital, HCI Equity, Greenbriar Equity Group, Heartwood Partners, etc. At the portfolio company level, Chris has worked closely with exectuive leadership to identify cost reduction opportunities and marshalled the Treya deliery team to execute on these opportunities.
With significant pressures building, PE firms and Their Portfolio Companies Need to Act Proactively As Recent Supply Chain Distruptions are Creating Inflation
“Good luck finding a rental car in Hawaii! My friend ended up renting a U-Haul on her Hawaiian vacation recently because she couldn’t get a rental car due to the shortage.” These are words we never expected to hear this summer, but have. A series of unrelated recent events – the Covid-19 pandemic, expiration of temporary tariffs relief, the deep freeze in Texas, the Suez Canal blockage, and the Colonial Pipeline hacking incident - have led to a severely disrupted global supply chain – and in turn, supply chain disruptions like these.
A significant imbalance between supply and demanding is also fueling inflation. As demand rebounds as pandemic restrictions are lifted, and the American economy feels the effects of the $1.9 trillion stimulus package, supply is constrained due to raw materials shortages and shipping delays. With supply not meeting demand, Producer Price Index (PPI) as measured by different Bureau of Labor Statistics (BLS) indices is significantly higher than twelve months ago. Input cost increases are resulting in both business to business and business to consumer price increases. For instance, US gasoline prices are at a 7 year high, used car prices are up 24% year-over-year, and lumber prices are up a whopping 95% from pandemic lows.
Portfolio Company Impact
Many PE portfolio companies whose revenues were negatively impacted by Covid have seen a healthy bounce back, with business back at close to pre-Covid levels. However, while some of these companies used Covid as an opportunity for some belt tightening, none of them forecasted the level of inflation we are seeing in input pricing. As the rest of 2021 unfolds, this will lead to significant margin erosion, which most companies have not anticipated for, or built into their budgets and financials. Many portfolio companies, as they close out the year, will be looking at significantly worse financials (than current forecasts) if they do not act proactively.
How Can Private Equity Firms & Their Portfolio Companies Combat Inflation
1. "Push Back" Against Supplier Cost Increases
2. Pass through Price Increases to Customers (where possible)
3. Utilize Strategic Sourcing
About Treya Partners
Treya Partners is a management consulting firm specializing in procurement value creation, strategic sourcing, and spend management advisory services for Private Equity. Treya was established in 2006 by a seasoned group of supply management professionals and has served hundreds of PE-owned companies across a broad range of industry sectors including manufacturing, distribution, retail, financial services, life sciences, healthcare, and technology. Treya delivers meaningful EBITDA improvements from indirect (SG&A) and COGS categories in addition to implementing transformative procurement projects. For further information, visit Treya Partners online at https://www.treyapartners.com.
By: Barnali Mishra
About the Author
Barnali Mishra is a Principal with Treya Partners. Barnali has over 17 years of procurement consulting experience and has delivered high impact procurement and supply chain services to numerous private equity firms and their portfolio companies. Barnali has led and managed strategic sourcing initiatives addressing over forty spend categories and has extensive experience performing spend analysis, opportunity assessments, planning and executing competitive solicitations, conducting complex category strategic sourcing, and performing fact-based supplier negotiations. Barnali holds both a BA and an MA from Stanford University.
Barnali resides in San Francisco and enjoys traveling the world with her husband and daughter.