What levers can private equity funds use to turn around a distressed portco?
In order to stabilize margins amid recent uncertainty, private equity companies have pulled out all the stops to improve both top and bottom line performance. A closer look, however, reveals that not all the potential for operational value enhancements has been exhausted. This is where procurement can be private equity’s secret weapon to secure EBITDA growth. Some companies have faced crises as they have been unable to navigate the pressure between rising procurement prices and their customers demanding lower prices. For these companies, the key lies in identifying challenges and unique differentiators, nurturing them back to health.
Firstly, immediate cost control becomes imperative. This requires gatekeeper governance, swift action to staunch expenditure and halt the bleed through dedicated process and governance reviewing expenditures above a certain threshold. Then the focus sharpens on short-term levers, especially demand management, rigorous budget reviews for pivotal categories, and a dedicated task force, renegotiating terms with top suppliers. Finally, establishing close ties and consistent dialogue with top management and relevant third parties becomes paramount. These measures aren’t just about stabilizing; they also reinforce the foundation and allow companies to make a resilient comeback.
In doing so, procurement can become private equity’s secret weapon, a catalyst for securing EBITDA growth in times of adversity.
How can private equity take advantage of cooling inflation to drive prices back down?
As inflation begins to cool, the challenge for businesses is to systematically capture this release of prices in most areas. To navigate this, three key strategies come to the fore. First, it is vital for businesses to actively track inflation and deflation. The INVERTO inflation tracker, for example, allows you to scrutinize vendor requests, determine whether price increases were well-reasoned or were overly-inflated.
Second, installing index-linked clauses with key suppliers ensures fairness and balanced exposure for all parties, helping you foster positive relationships even in challenging times. And third, leveraging the diversity and knowledge within your portfolio. When multiple companies engage with the same vendors or face varying market requests, harness that collective strength to ensure parity. This is where AI can come into its own, enabling full transparency across your full portfolio, when entering into conversations with suppliers. Leveraging AI isn’t just about managing through the crisis. It also provides you the tools to seize opportunities during a downturn and drive further resilience.
How can private equity funds leverage working capital optimization to provide qucik cash release?
In today’s competitive landscape, the urgency for private equity to drive value has never been greater. But how can private equity funds unlock rapid cash release? Well, the answer lies in rigorous working capital optimization. The process consists of three main steps: successful working capital optimization requires cost transparency across the organization. The first step is to focus on creating complete transparency of the cash conversion cycle. Then you can determine whether payment terms are fair and aligned to the supply market best practices. And finally, key contracts can then be rapidly renegotiated to optimize payment terms.
Implementing these measures can be challenging, but the benefits are substantial. Improved cash flow creates strategic competitive advantage, crucial in today’s dynamic markets. A leaner balance sheet improves KPIs and valuation metrics, allowing for higher valuations. Moreover, it minimizes bad debts, avoiding obsolete inventory and lowering financing costs. Leveraging working capital improvements is not just about quick cash release. It has a vital role in unlocking sustainable value in today’s high-paced PE environment.