Increasing portfolio value is the driving force for most PE firms. Reducing expenses is a great place to help achieve this goal. Most PE firms see that increasing profit through cost reduction means increase valuation by a multiple of 7 to 10. So if you take $1,000,000 out of the cost you have effectively increased your portfolio’s value by approximately $7,000,000- $10,000,000. This is why many PE firms attack the cost side of the ledger so aggressively.
Non labor expenses are a great place to look for cost savings opportunities and within that category telecommunications ranks near the top. Telecommunications is a very broad area and covers many services and spans many departments. A telecom audit will help identify areas of opportunity and can yield double digit savings. The good news is much of the savings can be achieved by working with your existing vendors and services. There is a saying in the consulting space that sums it up best “increased vendor loyalty equals decreased leverage” and in the PE space this can be a gold mine (if you know where to look) as many portfolio companies lack sophisticated procurement policies and have long standing vendor loyalty.
Typical, audit programs are very effective in reducing cost, especially with a targeted three phased approach that focuses on:
Contract Compliance- insure billing matches contracted rates
Waste Elimination- cancel all services not being used
Purchase Maximization – optimize services by getting best in class pricing
The next step is to work to create portfolio wide programs with your vendors. Although these are not readily available, with a good plan and the right strategy, your vendors can and will come around and begin to view the PE portfolio as a large spending block instead of a group of smaller spends. This is an often overlooked opportunity to increase the portfolio value by increasing profits. This will allow smaller portfolio companies to benefit as much as, if not more than, the larger companies.
Just in case you were concerned about local support, all major vendors will allow your portfolio companies to keep their current local account teams while layering on the new program team as an added resource. This is a great way to increase values as well as provide the portfolio companies increased visibility and support from their telecom vendors.
The telecom audit is really a simple and fast way for PE firms to offer benefits and support to their Portfolio companies while helping improve the bottom line and increase portfolio values.
[author_bio username=”Ken” name=”yes”]
