While a private equity firmcan invest more heavily in one type of value strategy or another, the best result comes when a PE firm works with an operating company to increase both monetary value and relational value.
Lenders are far more cautious with the companies they invest in than they were just a few years ago. They want to see that a private equity can deliver real value. And since the only controllable way to create that kind of value is to become a “portfolio activist,” it is in a private equity firm’s best interest to focus on overall operational improvements. PE firms who took this approach early on in their relationship with their portfolio companies saw a 200% greater return than firms who didn’t.
In a recent survey conducted by Bain Capital, 75% of respondents said that operational improvements will be their primary source of value creation over the next several years. The same number claims to have already become far more involved in the management and mentoring of their operating companies – focusing on such improvements as financial reporting and operational efficiency.
The point is, great portfolio management isn’t just a slice and dice operation. It’s one of innovation, added value, and care.
One of the easiest and best ways to add value to operational efficiency is through telecommunications expense management. Telecommunications is typically one of the largest line items for private equity firms. Telecom bills come pouring in every month loaded with confusing jargon and bloated with overage charges.
The good news though is that it there are lots of ways private equity firms can save on telecom. Adapting a winning strategy not only saves money, it adds value to your portfolio. Today, we’ll show your private equity firm how to write a telecom vendor RFP.
With today’s huge emphasis on digital communication, private equity firms can find their regular and recurring telecom expenditures exorbitant. For some PE firms with large portfolios, telecommunications invoices can represent one of their largest expenses and, at the same time, one of the least understood.
According to a study by Gartner Research, by not regularly auditing their telecommunications invoices, companies are giving up 10% or more of their telecom expenditures to their service providers in the form of improper billing, bill errors and paying for services not being used. Our analyses have shown that approximately 80% of all invoices are simply paid without ever being audited which, for some large PE firms, can mean a loss of huge amounts of dollars every billing period.
4 Ways Private Equity Firms Can Master A Telecom Vendor RFP
There are basic ways a private equity firm can pare down their telecom expenses, all of which will require an analytical assessment at what your company currently has in place. Conducting an RFP, or Request for Proposals, is a useful strategy in the process, even if you’re not currently considering changing telecom providers. A formal RFP will bring an element of competition and cause vendors to offer the best deal possible. This also applies to your current provider, who will likely be willing to cut some costs if it means keeping your business.
Leverage Your Portfolio To Get Better Rates
With some of your companies growing into new areas and/or markets while others may be down-sizing or consolidating, leveraging your entire portfolio of companies into what is essentially one, single telecom client will give you access to the best price points
Consolidation & Optimization of the Services You Need
This will ensure that you’re utilizing vendors that are the best at what they do for each of your companies’ specific needs, even if that means different vendors for different services.
Know What You’re Actually Using
In order to save on telecom you must first know what you are using. This can be anything from equipment and services. Once you have a firm grasp of what you are using, quit paying for what’s not being used or not needed.
Centralize Your Purchasing
When you centralize your purchasing each of your companies will have improved buying power when all the individual units within your portfolio are treated as a single entity in the area of telecom services
Submitting a formal Request for Proposals from a handful of telecom providers can be a time-consuming, technical task, but it can also be a tremendous way to save. It is often well-worth the effort.
Bear in mind that acquisition pricing will naturally be more attractive than retention pricing. Conducting an RFP stimulates acquisition pricing because it fosters competition. Renewing an existing telecom service contract without competition from other vendors stimulates retention pricing, which means you pay more. Conducting an RFP will help you save!
[author_bio username=”Ken” name=”yes”]
