Delivering value from third party supplier spend in Private Equity

The expected or conventional perspective on Private Equity would be that upon investigating a new…...

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The expected or conventional perspective on Private Equity would be that upon investigating a new acquisition or an existing business asset procurement would be managed centrally and spend aggregated to create commercial advantage.

However, this is typically not the case, often Private Equity organisations take a hands-off approach allowing the management of a business to get on with running the operation free of any dictate – thus ensuring they are fully accountable. The rationale being that the top team are often financially incentivised to deliver. Whether the business have a procurement function will depend on it’s scale and the emphasis or strategy of the businesses management team.

To our minds PE are missing a trick. This is one of aggregation of spend, and application of common best practises to spend categories which would enable price and cost improvements that could demonstrably benefit the bottom line, and therefore the valuation of the business when it is divested. Similarly, with third party spend ranging from 20-80% of revenues, depending on sector, a significant opportunity during due diligence prior to acquisition is also being missed. Deploying procurement expertise to the acquisition team (data room) will allow a disciplined and evidence-based opportunity analysis which will support the business case for purchase.

For the PE organisation having a standing team is not necessarily an appropriate approach, this is for a variety of reasons, these range from the associated overhead cost, the nature of peaks and troughs of activity, not having all of the deep category experts as well as not being current with the market-place in best practise and price or ‘should cost’ terms. And a standing team will often take a conservative approach to savings opportunity value – they are only human after all.

For this reason, utilising deep subject matter expertise from a nimble and fast acting consulting operation offers a clear and cost-efficient team, who are also free of bias and they can be utilised as and when required.

Odesma have significant experience working with PE backed assets, and can quickly hit the ground to identify both opportunity through their proprietary diagnostic as well as delivering change and savings both to individual assets, as well as on a combined basis.

Ed Cross

Ed founded Odesma in 2014 with the explicit intent of creating a new kind of procurement consultancy founded entirely on cloud principles. Deploying best-of-breed subject matter experts alongside the best on demand technology to deliver rapid and effective change for customers.

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