Practical Recommendations from Private Equity Expert Jens Kiebler
„Private equity companies need to do more!“
That is the simple message from Jens Kiebler, principal at INVERTO and expert in private equity. And he also says that the first 100 days after a contract has been agreed are crucial for procurement.
Experience has shown that buyers in portfolio companies cannot achieve significant savings on their own. Ideally, they will be assisted by procurement experts from private equity, or external advisers. They can provide expertise and time, both of which can be in short supply in day-to-day business. They can also pass on knowledge to investment buyers that will stand them in good stead after the procurement project. This means the buyers can use more complex strategies, not only while they are working with the external consultants, but also sustainably on a long-term basis within the procurement team.
It has been proven that portfolio companies achieve higher savings when the private equity firm sets clear-cut goals. These goals should be based on a potential analysis and communicated transparently. It is especially helpful to show which measures can lead to success, within the scope of this analysis.
Expand your toolbox
Procurement organizations have matured, and when it comes to secondaries, the low-hanging fruit has clearly already been picked. But in the current economic downturn, it may be worthwhile re-examining whether it makes sense to keep using the classic procurement strategies: negotiating with suppliers and re-tendering. Suppliers may be willing to make concessions, or able to pass on price reductions, as a result of the downturn. These standard tools alone are no longer enough to achieve significant savings potential. Private equity companies should therefore also use more sophisticated levers in procurement, such as reviewing technical specifications, standardization, bundling, and global sourcing. Although it takes longer for these strategies to become effective, the effort will pay off.
The price that a private equity firm is willing to pay for a company also depends on the perceived potential for operational value creation. So, it is imperative to realistically assess this potential during the due diligence process, looking carefully at what is actually possible. This assessment needs to be more thoroughly for secondaries, or where recent procurement initiatives have already been carried out.
The upside of procurement optimization is that results can quickly materialize, providing funds for investment in other areas. That’s why the first 100 days after a contract has been agreed are particularly relevant for procurement. The first step is the potential analysis, as already mentioned; this goes into the specifics of the due diligence findings, forms the basis for optimization goals in procurement sub-areas, and shows what measures will be necessary. This analysis can take anything from ten days to six weeks to complete, depending on the size of the company. After that, the goals should be clear-cut, and roadmap of measures to take can be created. As soon as this is done, implementation can begin. Initial results can usually be achieved in as little as 30 days.