Remote supply chain and increased exit valuation (CS247a)

100% remote delivery of supply chain improvements rapidly increased exit valuation

This story is for executives who:

• Want to improve performance and prepare a portfolio company for exit
  
  

• Need to secure savings and overcome supply challenges in a company with an immature procurement organization
  
  

• Want to simplify the asset’s procurement process, overcome supply shortages and maximize exit value

The Challenge

Having successfully worked with this PE client to stand up portfolio companies post carve-out, we were approached to help increase the exit valuation of an asset in the specialty chemicals sector. The company, which produces chemicals used in the cleaning and personal care industry, had been positively impacted by COVID-19. However, high demand combined with a global shortage in raw materials had quickly overwhelmed the procurement organization.

To achieve savings and prepare for sale, the company needed to shift its procurement approach and secure supply agreements in line with the sharp increase in front-end sales volume.

Securing savings in procurement to increase exit valuation

Procurement’s policy of spot buying may have been effective in the past. However, when COVID-19 hit, an increased demand/ declining supply environment, meant they risked being left high and dry as suppliers focused on companies with formal agreements. To get this under control, and significantly decrease transaction volumes, Maine Pointe needed to help the business move to strategic, supplier agreement-based procurement.

Delivering remotely, Maine Pointe’s SMEs worked closely with the portfolio company’s executive team to:

• Lead them through the negotiations and set up formal supply agreements, generating 9% in EBITDA improvement over an 18-week period
• Seek out new domestic and overseas suppliers which procurement was previously unaware of
• Map the existing supplier base back to producers to investigate the availability of additional raw material
• Train the global procurement organization in a standardized strategic sourcing and negotiation process to secure additional supply of key raw materials and leverage the value of supply agreements which include volume incentive rewards
• Develop and install a tailored management operating system for value tracking, and monitoring, including price management mechanisms

The improvement of procurement in terms of cost structures and agreements led to an annualized improvement of 6% within 18 weeks, increasing the valuation beyond the PE firm’s expectations.

The Results

Working closely with the PE firm and company leadership, Maine Pointe’s remote delivery model and accelerated approach resulted in:

• 9% EBITDA improvement
• Annualized savings of 6%
• An engagement ROI of 4:1
• Incremental valuation of ~$25M to be realized upon exit

Lessons learned for other executives

• You can significantly increase exit value in a short period of time
• An effective remote delivery model can produce measurable results, fast
• In times of crisis, it is possible to take advantage of changing supplier dynamics to rebalance the supply base and improve performance