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Creating significant pre-exit valuation multiples for a PE firm (CS298)



This story is for CEOs who:

  1. Want to quickly increase the exit valuation of a company
  2. Have limited resources to dedicate to a pre-exit sprint
  3. Understand the impact on buyers of an objective, third-party analysis

The Challenge

The private equity owners of a specialty chemical company were ready to exit the company and had asked the CEO and leadership team to drive more value than they already had. As the time for selling drew nearer, the PE firm realized it needed a third party to intervene to raise the exit valuation based on current multiples. The PE firm had never engaged in pre-exit value creation before; and the CEO and his leadership team were extremely doubtful that any additional value could be created.

Raising productivity and quality, strengthening the supply chain, and reinvigorating the culture

SGS Maine Pointe:

  • Engaged with 60+ suppliers to find optional sourcing and drive down pricing relative to the competition
  • Moved suppliers from spot pricing to index pricing plus adder • Trained procurement organization on strategic procurement
  • Closed the analytics gap created by multiple, incompatible ERP systems
  • Significantly increased the exit multiple for the seller
  • Provided independently verified savings, giving the buyer greater confidence
  • Exceeded the original expectation of 11% to 13% savings, reaching an average of 15% across categories

Lessons learned for other executives

  • Do not wait before looking for ways to increase pre-exit valuation
  • Independent valuations are attractive to future buyers

The Results

  • Delivered an average of 15% sustainable savings on $29M in raw material and packaging spend across 20+ categories
  • Achieved > 4:1 ROI within 3 months
  • Rationalized packaging SKUs by 23%
  • Centralized warehousing and distribution of packaging, reducing logistics costs
  • Consolidated suppliers, allowing company to leverage more spend and drive deeper discounts
  • Business was sold quickly and buyer’s confidence increased because an independent consultant found the savings opportunities
  • >20:1 ROI based on normal exit evaluations

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