{"id":94895,"date":"2021-06-10T09:58:49","date_gmt":"2021-06-10T07:58:49","guid":{"rendered":"https:\/\/www.KGM Strategy.com\/?p=94895"},"modified":"2024-09-16T10:22:03","modified_gmt":"2024-09-16T08:22:03","slug":"smi-07-private-equity-study","status":"publish","type":"post","link":"https:\/\/www.KGM Strategy.com\/en\/insights\/magazine-07\/private-equity-study\/","title":{"rendered":"SMI 07 | Private Equity Study"},"content":{"rendered":"    <aside class=\"related-articles\" style=border-color:#c7ced9>\n        <span class=\"related-articles-button\" style=border-color:#c7ced9> Further articles <\/span>\n        <h3 class=\"related-articles-title\"> Further articles <\/h3>\n        <div class=\"related-articles-content\">\n            <div class=\"row horizontal-gap\">\n                                    <div class=\"article-box col-6 col-sm-4 col-md-12\">\n                        <a href=\"https:\/\/www.KGM Strategy.com\/en\/smi-07\/\" class=\"article\" target=\"_blank\">\n                            <img decoding=\"async\" src=\"https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/03\/smi-title-en-325x450.jpg\" class=\"img-fluid\" loading=\"lazy\" \/>\n                            <div class=\"overlay\"><\/div>\n                        <\/a>\n                    <\/div>\n                                    <div class=\"article-box col-6 col-sm-4 col-md-12\">\n                        <a href=\"https:\/\/www.KGM Strategy.com\/en\/smi-07\/lead-times\/\" class=\"article\" target=\"_blank\">\n                            <img decoding=\"async\" src=\"https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/03\/smi-leadtimes-en-325x450.jpg\" class=\"img-fluid\" loading=\"lazy\" \/>\n                            <div class=\"overlay\"><\/div>\n                        <\/a>\n                    <\/div>\n                                    <div class=\"article-box col-6 col-sm-4 col-md-12\">\n                        <a href=\"https:\/\/www.KGM Strategy.com\/en\/smi-07\/foresighted-riskmanagement\/\" class=\"article\" target=\"_blank\">\n                            <img decoding=\"async\" src=\"https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/03\/smi-riskmanagement-en-325x450.jpg\" class=\"img-fluid\" loading=\"lazy\" \/>\n                            <div class=\"overlay\"><\/div>\n                        <\/a>\n                    <\/div>\n                            <\/div>\n        <\/div>\n    <\/aside>\n\n\n<p><div class='container  py-3'><div class=\"row \"><div class=\"col-lg-12\"><h2><strong><span style=\"color: #ee1c25;\"><span style=\"color: #000000;\">Operating all <\/span><\/span><span style=\"color: #ee1c25;\">levers<\/span><\/strong><\/h2>\n<p><span style=\"color: #000000;\"><strong>Private equity firms have literally applied all levers on the top and bottom line in order to beat the pandemic and stabilize margins. Closer inspection reveals, however, that procurement still has a long way to go to exploit the full potential.<\/strong><\/span><\/p><\/div><\/div><\/div><div class='container  py-3'><div class=\"row \"><div class=\"col-lg-6\"><p><span style=\"color: #000000;\">So far, private equity firms and their portfolio companies have largely emerged from the coronavirus pandemic relatively unscathed. Although 80% of the experts who responded to our survey reported declining sales in their portfolio companies, these have only caused a fall in profits for around half the respondents (55%). Compared to the pre-pandemic situation, private equity firms are clearly operating more defensively. Respondents in our 2019 private equity survey put the focus squarely on implementing top-line measures to boost the value of their portfolio companies. Expansion and add-on acquisitions \u2013 top-line measures that dominated the 2019 survey along with sales investments \u2013 have become significantly less popular in the latest study, however, with the focus shifting to the bottom line.<\/span><br \/>\n<span style=\"color: #000000;\"><br \/>\nThis is astonishing, given that 76% of respondents are currently seeing their investment opportunities either rising or staying the same, while 82% are noticing investment prices falling or remaining unchanged. These figures could be interpreted as a sign that the climate for acquisitions is positive: since there is still dry powder stored in the arsenals, we are now seeing a renewed willingness to invest.<\/span><\/p>\n<h3><strong><span style=\"color: #ee1c25;\">Portfolios less dependent on economic developments but more sustainable<\/span><\/strong><\/h3>\n<p><span style=\"color: #000000;\">At the same time, private equity firms have increasingly shifted their focus to industries including professional services and pharma\/healthcare \u2013 and both of these areas are less dependent on the economy than manufacturing industries, for example. Although industrial goods are still in the top three investment targets, they have fallen sharply to 37% compared with the 2019 survey, where they accounted for more than 50% of all investments.<\/span><\/p><\/div><div class=\"col-lg-6\"><p><span style=\"color: #000000;\">ESG (environmental, social, governance) criteria have also retained their importance, with 55% of respondents saying that sustainability criteria play an important role in investment decisions and that this has not been affected by the pandemic either. Just 9% of survey respondents report that the issue has become less of a priority due to coronavirus.<\/span><\/p>\n<p><strong><span style=\"color: #ee1c25;\">Bottom-Line gains importance<\/span><\/strong><\/p>\n<p><span style=\"color: #000000;\">After more than a year of pandemic, it is clear that all the companies that responded to the survey have intensified their efforts on the bottom line and that all areas are consistently seeing greater potential for creating value than two years ago.<\/span><\/p>\n<p><span style=\"color: #000000;\">This is no surprise, given that top-line operations are usually linked to investments, while the fields of action on the bottom line involve savings, cost reductions and stabilizing cashflow. In other words, these measures have an immediate effect and mostly do not require initial investments. As the pandemic forced many companies to restrict business operations or even close completely \u2013 unlike the usual economic crises \u2013 it is understandable that reducing staff costs became more important. But we believe that, in many cases, this more likely involves reducing working hours, rather than laying staff off and, we expect to see the skills shortage, once again, becoming the main staffing issue when the pandemic is under control.<\/span><\/p><\/div><\/div><\/div><div class='container  py-3'><div class=\"row \"><div class=\"col-lg-12\"><p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-64183 size-full\" src=\"https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/04\/GRAFIK-EN.jpg\" alt=\"\" width=\"1200\" height=\"550\" srcset=\"https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/04\/GRAFIK-EN.jpg 1200w, https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/04\/GRAFIK-EN-800x367.jpg 800w, https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/04\/GRAFIK-EN-768x352.jpg 768w\" sizes=\"auto, (max-width: 1200px) 100vw, 1200px\" \/><\/p>\n    <div class=\"container py-4 quote-section type-minimalistic-text  \">\n        <div class=\"row\">\n            <div class=\"col-md-8 text\">\n                                    <div class=\"text-container\">\n                        <h3><strong><span style=\"color: #ee1c25;\">Standard Strategies Widely Used, More Sophisticated Concepts\nLess Common<\/span><\/strong><\/h3>\n<p>On taking a closer look, it was clear that portfolio companies in procurement are implementing measures that promise to deliver a rapid improvement in results: bundling, renegotiations, tenders, and so on. This is where private equity firms can also operate across companies, pooling suppliers for all their portfolio companies, for example, or bundling requirements for several companies in their\nportfolio.<\/p>\n<p>\n                        <div class=\"text-collapsed\">\n                            <\/p>\n<p>While these measures are necessary and effective, and they achieve quick results, they only offer limited leverage. If companies want to exploit the full potential for cost reductions, they should also utilize more sophisticated concepts such as demand management \u2013 conducting a precise analysis of all requirements \u2013 or technical respecification \u2013 such as looking for substitutes for raw materials. Private equity firms are perfectly aware that they could do more in this area. When it comes to sophisticated levers, 43% of survey respondents are aware of potential that is still untapped.<\/p>\n<p>In the area of procurement digitalization, just over half (51%) of respondents report missed opportunities. Admittedly, selecting and implementing digital solutions requires investment, so it is understandable that resources are not available if the pandemic has disrupted sales. Put simply, however, digital projects offer a fast and measurable return on investment, so private equity firms should definitely push for this in procurement projects.<\/p>\n<p><strong><span style=\"color: #ee1c25;\">Good Procuement Organizations Make For Significant Value Creation<\/span><\/strong><\/p>\n<p>The value that is delivered by procurement departments in portfolio companies varies greatly; in almost 75% of companies it is up to just 5% per year. Even so, 18% of respondents are achieving a value contribution of over 7.5%. These differences are also clearly visible in exits after five years on average. While the majority reports an overall contribution of up to 10% by procurement, the best buyers achieve value contributions of over 25%.<\/p>\n\n                        <\/div>\n                    <\/div>\n                    <button class=\"btn btn-link text-decoration-none text-uppercase float-none\">\n                        <i class=\"icon icon-plus-rounded fs-65 lh-0 mt-n2 me-2\"><\/i>\n                        Read more\n                    <\/button>\n                            <\/div>\n            <div class=\"col-md-4\">\n                <div class=\"quote fadeIn\">\n                    <i class=\"icon icon-quote fs-1\"><\/i>\n                    <div class=\"text\" style=\"color: #ee1c25\">\n                        \n\n\n\n<p>To realize the full potential for cost reductions, companies should also work with sophisticated measures.<\/p>\n\n\n\n\n\n                    <\/div>\n                <\/div>\n            <\/div>\n        <\/div>\n    <\/div>\n\n<h2><span style=\"color: #000000;\">The discrepancies can fundamentally be linked to<\/span> <strong><span style=\"color: #ee1c25;\">three criteria<\/span><\/strong><\/h2>\n<h3><span style=\"color: #a0d60a;\">\/<\/span> <span style=\"color: #000000;\">The biggest value contribution through procurement was achieved by private equity firms that:<\/span><\/h3>\n    <div class=\"container py-3\">\n        <div class=\"row\">\n                            <ol class=\"process-list-leading-numbers\" style=\"background-color:#ffffff;\">\n                    \n                                            <li class=\"animate-inview\" style=\"border-color: #c7ced9;color: #ee1c25;\">\n                            <div style=\"color:#282828;\">\n                                <div class=\"box-header\">\n<h3><span style=\"color: #ee1c25;\">&#8230; set clear goals<\/span><\/h3>\n<\/div>\n<p>Of the companies with above-average success, 67% of the private equity firms set clear procurement goals, compared to just 33% of the firms with a value contribution of less than 2.5%.<\/p>\n\n                            <\/div>\n                        <\/li>\n                                            <li class=\"\" style=\"border-color: #c7ced9;color: #ee1c25;\">\n                            <div style=\"color:#282828;\">\n                                <h3><span style=\"color: #ee1c25;\">&#8230; use all the standard levers at their disposal<\/span><\/h3>\n<p>89% of the particularly good buyers use the full set of standard levers, compared to just 69% of procurement teams achieving average results.<\/p>\n\n                            <\/div>\n                        <\/li>\n                                            <li class=\"\" style=\"border-color: #c7ced9;color: #ee1c25;\">\n                            <div style=\"color:#282828;\">\n                                <h3><span style=\"color: #ee1c25;\">&#8230; bring in external consultants<\/span><\/h3>\n<p>Of all survey respondents, 54% reported that they involve external consultants in procurement for their portfolio companies. The top reasons given for this strategy are the need for an objective perspective (52%), a lack of skills and specialist knowledge within the company (48%) and lack of staff (41%). Generally speaking, the companies that rely on the expertise of consultants perform better than those that do not.<\/p>\n\n                            <\/div>\n                        <\/li>\n                                                    <\/ol>\n                    <\/div>\n    <\/div>\n\n<p>&nbsp;<\/p><\/div><\/div><\/div><div class='container  py-3'><div class=\"row \"><div class=\"col-lg-2\"><\/div><div class=\"col-lg-8\"><p>&nbsp;<\/p>\n<div class=\"icon-boxes  \" data-moduleID=\"63742\" is=\"summary-box\">\n    <div class=\"summary-box-padding overflow-visible\">\n        <div class=\"icon-box has-icon  fadeIn\" style=\"border-color: rgb(199, 206, 217);\" data-animated-icon=\"true\">\n            \n                <div class=\"icon\">\n                    <div class=\"inner\">\n\n                                                                                    <svg id=\"animatedIcon-a6d50d270fb7d274c3d5dfcec91f2d64\" data-id=\"a6d50d270fb7d274c3d5dfcec91f2d64\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" xmlns:xlink=\"http:\/\/www.w3.org\/1999\/xlink\" x=\"0px\" y=\"0px\" viewBox=\"0 0 64 64\" xml:space=\"preserve\" width=\"75\" height=\"75\">\n                                    <path fill=\"none\" stroke-width=\"2\" stroke=\"#a0d60a\" stroke-miterlimit=\"10\" d=\"M43,16.4c-3.2-3.1-7.4-4.6-11.8-4.4C23,12.4,16.3,19.2,16,27.4c-0.2,5.1,2.1,10,6.1,13.2C24,42,25,44.1,25,46.2V47h6V34.5l-5.5-3.7c-0.5-0.3-0.6-0.9-0.3-1.4c0.3-0.5,0.9-0.6,1.4-0.3l5.4,3.6l5.5-3.6c0.5-0.3,1.1-0.2,1.4,0.3c0.3,0.5,0.2,1.1-0.3,1.4L33,34.5V47h6v-0.8c0-2.2,1-4.2,2.9-5.7C45.8,37.5,48,32.9,48,28C48,23.6,46.2,19.5,43,16.4z\"\/>\n                                    <path d=\"M27,49h-2v5c0,0.5,0.5,1,1,1h1.1h9.8H38c0.5,0,1-0.5,1-1v-5h-2H27z\" fill=\"none\" stroke-width=\"2\" stroke=\"#a0d60a\" stroke-miterlimit=\"10\"\/>\n                                    <path d=\"M32,60c3,0,4-2,4-3h-8C28,58,29,60,32,60z\" fill=\"none\" stroke-width=\"2\" stroke=\"#a0d60a\" stroke-miterlimit=\"10\" \/>\n                                    <line fill=\"none\" stroke-width=\"2\" stroke=\"#a0d60a\" stroke-miterlimit=\"10\" class=\"st0\" x1=\"9.9\" y1=\"10.5\" x2=\"16.4\" y2=\"15.6\"\/>\n                                    <line fill=\"none\" stroke-width=\"2\" stroke=\"#a0d60a\" stroke-miterlimit=\"10\" class=\"st0\" x1=\"47.9\" y1=\"36.6\" x2=\"54.4\" y2=\"41.7\"\/>\n                                    <line fill=\"none\" stroke-width=\"2\" stroke=\"#a0d60a\" stroke-miterlimit=\"10\" class=\"st0\" x1=\"9.5\" y1=\"41.4\" x2=\"15.8\" y2=\"36.1\"\/>\n                                    <line fill=\"none\" stroke-width=\"2\" stroke=\"#a0d60a\" stroke-miterlimit=\"10\" class=\"st0\" x1=\"48.2\" y1=\"15.7\" x2=\"54.5\" y2=\"10.4\"\/>\n                                    <line fill=\"none\" stroke-width=\"2\" stroke=\"#a0d60a\" stroke-miterlimit=\"10\" class=\"st0\" x1=\"32\" y1=\"1.8\" x2=\"31.9\" y2=\"10\"\/>\n                                    <line fill=\"none\" stroke-width=\"2\" stroke=\"#a0d60a\" stroke-miterlimit=\"10\" class=\"st0\" x1=\"14.1\" y1=\"26\" x2=\"5.8\" y2=\"26\"\/>\n                                    <line fill=\"none\" stroke-width=\"2\" stroke=\"#a0d60a\" stroke-miterlimit=\"10\" class=\"st0\" x1=\"58.1\" y1=\"26\" x2=\"49.9\" y2=\"26\"\/>\n                                <\/svg>\n                            \n                        \n                    <\/div>\n                <\/div>\n\n            \n            \n                <h3 class=\"title\" style=\"color: rgb(199, 206, 217)\">\n                    CONCLUSION\n                <\/h3>\n\n                <div class=\"content\">\n                    <section class=\"textbox-section animation animate\" data-animation-delay=\"0\" data-animation-init=\"true\" data-animation-count=\"-3\" data-animation-offset=\"0\" data-animation-anchor=\"top\" data-animation-screen=\"center\">\n<div class=\"section-inner\">\n<div class=\"section-content\">\n<p>Setting clear goals and consistently applying professional methods significantly improves the results procurement can achieve \u2013 and with them, the success of the company as a whole. Strategic investments in digitalization also improve procurement performance, and should definitely be pursued. As sustainability criteria are becoming increasingly important for companies, private equity firms should make sure that procurement goals are aligned with the specified ESG criteria in their portfolio companies. This will enable procurement to make the best possible contribution to creating social and environmental added value.<\/p>\n<\/div>\n<\/div>\n<\/section>\n\n                <\/div>\n\n            \n        <\/div>\n    <\/div>\n<\/div>\n\n<\/div><div class=\"col-lg-2\"><\/div><\/div><\/div><div class='container  py-3'><div class=\"row \"><div class=\"col-lg-12\">\n    <div class=\"container authors-section fadeIn  \" is=\"authors-and-partners\">\n        <div class=\"description row\">\n            <h2>\n                                                            Authors\n                                                <\/h2>\n        <\/div>\n\n        <div class=\"row\">\n                            <div class=\"mb-5 col-md-6 mb-md-0\">\n                    <div class=\"author\">\n                                                    <figure>\n                                <img loading=\"lazy\" decoding=\"async\" width=\"250\" height=\"250\" src=\"https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2021\/08\/Principal_Jens_Kiebler_350x440-250x250.jpg\" class=\"img-fluid\" alt=\"\" \/>\n                            <\/figure>\n                        \n                        <h3>Jens Kiebler<\/h3>\n                        <p class=\"person-position\">Associate Director<\/p>\n                                                    <div class=\"short-desc\"><p>is a Principal at KGM Strategy in Cologne. He is an expert in restructuring procurement organizations and optimizing working capital. He mainly advises customers from process manufacturing, machine and plant engineering, as well as private equity firms.<\/p>\n<\/div>\n                                                <div class=\"contact-information\">\n                                                                                                <a href=\"mailto:jens.kiebler@kgmstrategy.com\" class=\"mail-link\">jens.kiebler@kgmstrategy.com<\/a>\n                                                                                                                                                <\/div>\n                                                    <a href=\"https:\/\/www.KGM Strategy.com\/en\/insights\/magazine-07\/private-equity-study\/\" class=\"btn btn-outline-secondary text-terciary\">Contact<\/a>\n                                            <\/div>\n                <\/div>\n                            <div class=\"mb-5 col-md-6 mb-md-0\">\n                    <div class=\"author\">\n                                                    <figure>\n                                <img loading=\"lazy\" decoding=\"async\" width=\"250\" height=\"250\" src=\"https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2021\/08\/Torben_Menzel_400x400-250x250.jpg\" class=\"img-fluid\" alt=\"\" srcset=\"https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2021\/08\/Torben_Menzel_400x400-250x250.jpg 250w, https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2021\/08\/Torben_Menzel_400x400.jpg 400w\" sizes=\"auto, (max-width: 250px) 100vw, 250px\" \/>\n                            <\/figure>\n                        \n                        <h3>Torben Alhusen<\/h3>\n                        <p class=\"person-position\">Principal<\/p>\n                                                    <div class=\"short-desc\"><p>is a Principal at KGM Strategy in Frankfurt. He mainly manages projects in the industrial goods and process industries.<\/p>\n<\/div>\n                                                <div class=\"contact-information\">\n                                                                                                <a href=\"mailto:Torben.menzel@kgmstrategy.com\" class=\"mail-link\">Torben.menzel@kgmstrategy.com<\/a>\n                                                                                                                                                <\/div>\n                                                    <a href=\"https:\/\/www.KGM Strategy.com\/en\/insights\/magazine-07\/private-equity-study\/\" class=\"btn btn-outline-secondary text-terciary\">Contact<\/a>\n                                            <\/div>\n                <\/div>\n                    <\/div>\n    <\/div>\n<\/div><\/div><\/div><\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>&nbsp; &nbsp;<\/p>\n","protected":false},"author":10,"featured_media":63694,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_seopress_robots_primary_cat":"none","_seopress_titles_title":"","_seopress_titles_desc":"Private equity firms use all levers to counter pandemic and stabilize margins \u2713 Procurement's untapped potential revealed upon closer inspection \u25b6 KGM Strategy","_seopress_robots_index":"","footnotes":""},"categories":[700,734,394],"tags":[],"class_list":["post-94895","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-article","category-private-equity","category-general-en"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.KGM Strategy.com\/en\/wp-json\/wp\/v2\/posts\/94895","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.KGM Strategy.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.KGM Strategy.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.KGM Strategy.com\/en\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/www.KGM Strategy.com\/en\/wp-json\/wp\/v2\/comments?post=94895"}],"version-history":[{"count":0,"href":"https:\/\/www.KGM Strategy.com\/en\/wp-json\/wp\/v2\/posts\/94895\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.KGM Strategy.com\/en\/wp-json\/wp\/v2\/media\/63694"}],"wp:attachment":[{"href":"https:\/\/www.KGM Strategy.com\/en\/wp-json\/wp\/v2\/media?parent=94895"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.KGM Strategy.com\/en\/wp-json\/wp\/v2\/categories?post=94895"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.KGM Strategy.com\/en\/wp-json\/wp\/v2\/tags?post=94895"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}