Strategic Sourcing: A Pre-Exit Value Creation Lever

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.
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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:

• Cost savings and operational efficiencies:

The primary goal of a strategic procurement project is to identify and implement cost savings and operational efficiencies. By optimizing supplier relationships, consolidating spend, renegotiating contracts, and implementing streamlined procurement processes, a company can significantly reduce costs and improve its bottom line. This, in turn, will increase enterprise value by making a positive impact to EBITDA, the most important figure in portfolio company valuation.

• Risk mitigation and supply chain resilience:

A strategic sourcing engagement can also help mitigate risks and enhance supply chain resilience. By diversifying suppliers, identifying potential risks, and implementing contingency plans, a company can reduce its exposure to supply chain disruptions and ensure business continuity. This can demonstrate to potential buyers that the company has a robust supply chain that can weather unexpected events, a consideration all too familiar coming out of the post-COVID supply chain disruptions around the world.

• Improved supplier relationships and innovation:

A strategic sourcing project can also help a company build stronger relationships with its suppliers and foster innovation. By engaging with suppliers and collaborating on partnership and future growth, a company can gain a competitive edge and differentiate itself in the market. This can demonstrate to potential buyers that the portfolio company has strong relationships with its suppliers and is well positioned for future growth.

• Enhanced visibility and data analytics:

A strategic procurement project will generate enhanced visibility and data analytics. By running a multi-category sourcing effort and collecting usage level data from their vendor community, a company can track spend, monitor supplier performance, and identify areas for improvement/negotiation.
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.