Private Equity deal-flow has declined significantly in Q1 and Q2 of 2023. Economic uncertainty, driven by factors such as geopolitical events, and global market volatility, are making an already challenging deal-making environment even more difficult. Further, rising interest rates are making it tougher to secure appropriate debt financing to support deal values. There is also a valuation gap that still exists between sellers and PE buyers. In this challenging environment identifying untapped procurement opportunities can provide an additional source of value to getting a challenging deal over the finish line. To uncover these opportunities, we recommend that a systematic approach be utilized during due diligence to analyze the target company's procurement processes, supplier relationships, and cost structures:
By utilizing the approach above as part of their due diligence, PE firms can uncover margin improvement opportunities within the target company's procurement function. Detailed analyses can also be conducted to estimate the opportunity and potentially underwrite a portion of that in the deal investment thesis.
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