A large private equity fund was able to achieve impressive savings by harnessing the combined purchasing power of its portfolio companies.
A top 10 private equity megafund was looking for new ways to increase the value of its approximately 30 portfolio companies by reducing costs, enhancing service levels and improving their operations. During an annual conference, the deal professionals and chief financial officers for the portfolio companies discussed leveraged purchasing— the concept of pooling the portfolio companies’ buying power to get better deals from suppliers—as a potential tool to reduce costs, but because the fund had traditionally taken a hands-off approach to managing its companies, leadership was unsure if getting more deeply involved in their operations was the right strategy.
PwC initially conducted an assessment to develop a roadmap and define the strategic approach for driving value. After identifying categories that the companies could collectively leverage in the market and evaluating existing supplier contracts, we collaborated with the portfolio companies to establish unique category strategies. A pilot program for six product categories across six portfolio companies was launched and yielded over $20 million in annualized savings, so the fund leaders quickly decided to expand the program. A second wave added 18 more companies and 10 more product categories. Three more waves followed, by which time virtually all the portfolio companies were on board. The client also adopted a direct material industry-specific option to enhance the potential for even more savings.
Taking the fund all the way from initial strategy through implementation, our client is positioned to enjoy continued benefits no matter how often its portfolio changes or how big it grows. The customized leveraged purchasing program is built to scale and built to last, already resulting in improved service levels, reduced complexity, enhanced account management, $150 million in annualized savings, and the creation of over $1 billion in market value.
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