Private Equity Due Diligence & Value Creation

The sensitivity of company value to the supply chain of an organisation is significant. This sensitivity can be leveraged by private equity companies in creating value.

Overview

The two most desirable drivers of value creation for organisations:

  1. Revenue growth opportunity 
  2. Improving the working capital mix

Private Equity is recognising operation and supply chain optimisation as a valuable investment in achieving profitable transactions.

Challenges

The gap between profitable and redundant Private Equity transactions is widening, the current economic context is challenging private equity firms as:

  • Transaction supply stagnates – companies available for purchase are limited
  • The condition of the IPO market makes selling companies difficult
  • Re-financing debt by banks is increasingly difficult
Opportunities
  • Increases revenue generation by improving service levels, generates equity value and additionally, the dollar earnings are multiplied by the sale multiple on exit.
  • Improves the working capital ratio, improves return on capital, and releases cash to pay down debt
Approach

Acquisition and Exit Phase: Supply Chain Investment Audit Report

A report, covering opportunity/risk in all areas of the supply chain which identifies the ‘quick-wins’ for the financial statements in areas of Supply Chain Strategy, Operational Planning and Logistics Execution.

The report details quantifiable outcomes such as:

  • Inventory optimisation/balancing, revenue improvements, cost reductions and cash flow/working capital improvements
  • Scalability/Head-count audit
  • Outsourcing & 3PL Strategy
  • Strategic Sourcing
  • Supply Chain Technology Investments
  • Customer/Supplier collaboration

Value Creation Phase: Provide the management team with expertise, proven methodologies and toolsets to realise the growth potential.

  • Inventory Balancing/Optimisation
  • Supply Chain Network/Transportation Optimisation 
  • Capability improvement strategies (people, process, systems & data)
  • Organisation structure, policy, KPI and incentive design
  • Leveraging Framework implementations, e.g. S&OP
Outcomes

Key Benefits of Supply Chain Consulting:

  • Increase Sales Revenue 
  • Improve working capital to free up cash-flow. ‘Free Cash’ Flexibility – Reinvest in Core Foundation
  • Initiatives, Reinvest in Growth Initiatives
  • Improve operational cost efficiency Inventory Carrying Costs, Receiving Costs, Ordering Costs, Warehousing Costs, and Obsolescence & Markdown Costs.
  • Transportation & Logistic efficiency

Achieved by:

  • Inventory Optimisation (balancing inventory levels)
  • Reducing the cash-conversion cycle
  • Aligning KPI’s and incentives
  • Optimising supply chain network, transport and route efficiency
  • Setting Strategic Service levels

Typical Results include:

  • 10-30% increase Sales Revenue
  • 20-40% inventory investment reduction
  • 5%-20% spend management savings
  • 10-15% reduction in supply chain costs & improved operating efficiencies

– BACK TO CONSULTING

Testimonials

"Sales and profits are up, and Damaged & Dated is down. The sales team is engaged and enthusiastic about the S&OP process. It's a nut we've been trying to crack for two years, and we're finally seeing some green shoots."

– Paul Foster, Sales Director - Convenience & Food Service, Lion Dairy & Drinks

Typical results

  • 20-40% inventory investment reduction
  • increased service levels ranging up to 99.9%
  • 10%-15% reduction in supply chain operating costs
  • 5%-20% spend management savings
  • the ability to fund business initiatives from operating cash flow (OCF) improvements
  • improved return on capital employed (ROCE)
  • a minimum 3:1 ROI (10:1 to 30:1 typical)