A consumer goods manufacturer & distributor streamlined operations while reducing G&A costs by 26%.
Over three years, a private equity firm acquired three US-based businesses that manufactured and distributed consumer goods. The businesses sold similar products and operated through similar channels, including selling to both small retail stores and mass merchandisers, for combined revenues of $500 million. All three companies reported into the same corporate parent, but each had its own separate management team, as well as legacy operational systems and processes.
As the economy began to change, the CEO and CFO anticipated a softening in their key markets. To prepare, they wanted to reduce costs and streamline operations. They turned to PwC to identify opportunities to consolidate operations and drive synergies among the operating companies, focusing on the accounts receivables, accounts payables, general accounting, information technology, purchasing, planning and customer service functions.
"In good times, companies may tend to focus less on prudent cost management and implementing operational best practices, but when the economy turns downward, companies look for ways to cut costs and drive efficiencies," said Anthony S. Passaretti, partner in PwC's Private Company Services practice in New York City. In advising this client, the PwC team conducted a series of interviews with the leadership team and functional managers to assess the current state of the business and compared the financial and operational performance of the businesses to each other and to industry leading practices.
"Management identified some low-hanging fruit, and we were able to bring to the table some critical, broad-based thinking around what we've seen other consumer packaging companies do," said Passaretti. PwC assessed several different consolidation scenarios, developed the business case with one-time costs and run-rate savings, and identified risks and issues associated with each scenario. "We identified best practices for various functions at each of the three companies and used that as a road map for what should be done across the consolidated company."
As a result, PwC identified significant opportunities to reduce ongoing G&A costs by 26% to 36% (approximately $5.5M to $7M) through the consolidation of the back-office functions for two of the businesses with similar product lines and processes. This helped position the company to sell one of its warehouse buildings, which it no longer needed. When completed, the sale will provide a substantial amount of additional cash to the business.
Additionally, the executive leadership team used PwC's analysis to obtain buy-in from the board of directors to execute the consolidation. A two-phased, high-level approach was developed which prioritized the tasks and successfully integrated synergies while minimizing disruption to the business and impact to the customer.
The business integration and system conversion was completed on schedule and within budget. "We were able to help management realize their vision — and then some. This exceeded the expectations they had prior to engaging us for the project," Passaretti said.