Saving a Buck
April 13, 2009
I spend the majority of my working life talking with people who work in and around the private equity industry. The conversation tends to focus on what’s new in the market. (I like to find things to write about other than the fact that leverage is gone and dealmaking has slowed.)
As expected, many private equity professionals say they are spending more time with their portfolio companies. I have come to understand that “spending time on our portfolio” can mean anything from helping portfolio companies act strategically in the current environment to trying to resuscitate a company that’s on the brink of death. Somewhere in between those two scenarios, a lot of talk has been dedicated to the various ways firms can save money on the portfolio level.
Sometimes this entails the investment professionals going to work at a portfolio company. Many times the choice for these investment professionals is to either to go work at the portfolio company or face the potential of being laid off at the private equity firm.
“Private equity firms have to make sure they are doing what is right to keep things together the best they can,” says one consultant. “Private equity firms have a responsibility to their LPs to make the hard choices that will generate the returns.”
Pool purchasing — which has been around for quite some time — is also making a comeback, at least in conversation. The more portfolio companies a private equity firm has under its umbrella, the greater the potential to create pooled-purchasing arrangements that can cut costs, providing portfolio companies volume discounts on everything from healthcare to office supplies.
Pool purchasing seems like a great idea but many complain that it creates more headaches in practice because companies usually resist anything new. Of course, like anything, it takes time and effort on the part of the PE firms. And why wouldn’t more private equity firms be pushing portfolio companies to take advantage of pool purchasing programs? We know it isn’t because they can’t keep up with deal volume.
Danielle Fugazydanielle.fugazy@sourcemedia.com
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