Private equity companies understand power of procurement

14 February 2013

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14 February 2013 | Andy Allen

Private equity takeovers of a company can prove to be an unexpected boon for buyers, according to research commissioned by procurement consultancy Efficio.

“Contrary to widespread perception, private equity is not just about taking on troubled firms and reducing headcount,” said the report by Declan Feeney, director, Private Equity. “It is about improving their performance and the advantage is that you can take a longer-term view on change as you do not have quarterly/annual public company targets to hit.”

Feeney believes the sector has much to offer CPOs in terms of efficient approaches to procurement. Private equity firms are well aware of the power of procurement to improve profits, particularly when it can account for 60 per cent of spending in a large manufacturing company, he says.

Private equity involvement in a company means that without shareholders to consider, management hierarchies can be bypassed and fast decision-making enabled, according to his report.

Feeney adds that private equity managers are powerful stakeholders who can ensure their recommendations are implemented.

Additionally, private equity management team will typically appoint an individual to the company board to serve as an effective facilitator across the various members of the management team.

“This is good news for procurement, which requires greater cross-functional alignment to succeed,” said Feeney.

Smaller private equity-owned companies can benefit from leveraged deals across their owner’s portfolio companies, in indirect spend areas like car rental, couriers, stationery and IT hardware.

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