PORTFOLIO LEVERAGED SOURCING SERVICES

Historically, private equity firms have managed portfolio companies as individual, stand-alone assets or as sectorbased platforms rather than a true portfolio of investments. This emphasis may be due to a hands-off management philosophy or a sharper focus in other areas. Regardless of their motivation, many private equity owners miss a significant opportunity to increase bottom-line performance by harnessing synergies from the combined purchasing power of their investment portfolios.

THE A&M ADVANTAGE

Alvarez & Marsals professionals assist private equity firms in designing and implementing Portfolio Leveraged Sourcing (PLS) plans to strengthen cash flow, improve operating income, increase exit multiples, drive higher returns across the portfolio, and foster a higher level of efficiency and effectiveness throughout the collective organization. A&M drives savings with a disciplined, phased approach to buying goods and services, based on deep category-specific knowledge and best vendor management practices (see below). Strategically sourced agreements result in lowering the total cost of ownership for the organization and, ultimately, make investments much more attractive to potential buyers. In addition, the benefits of implementing a PLS program are quickly apparent and quantifiable (see bullets, right): Is Scalable, Portable and Produces Recurring Income PLS is a low-risk, self-funding investment. New acquisitions gain instant access to contracts, with savings that are often recurring, fall directly to the bottom line and are typically portable. Works Quickly Savings generally begin to be accrued immediately after new supply agreements are implemented, typically within 120 days of engagement kick-off. Incurs Minimal (if Any) Operational Disruptions With an externally driven process from spend database development to preparing for execution PLS achieves a significant return on investment with a low emotional quotient, since savings are often found in indirect, non-strategic spend categories.

By aggregating spend in common indirect, non-cost-of-goods-sold spend categories, a private equity firm can negotiate better deals for its entire portfolio on categories such as temporary labor, insurance, packaging, shipping, telecom, office and MRO supplies, computers and travel. These efforts can rapidly increase cash flow across the portfolio without disrupting the underlying operations or hampering divestiture efforts of the participating portfolio companies.
Conduct Spend Analysis Define Requirements Conduct Develop Category Select Suppliers / Plan and Manage Competitive Bidding Negotiate Contracts Strategy Transition Manage Supplier Performance

Phase 1 Desired Results

Portfolio spend profile Sourcing plan including baseline rationale, critical success and criteria, and savings estimates

Phase 2 Desired Results

New sourcing agreements Profitability Improvement EBITDA and exit value improvements Fund-level leveraged sourcing platform

Phase 3 Desired Results

Vendor / supplier management Ongoing EBITDA contribution Portfolio on-boarding and / or divestiture

A&M helps private equity funds and their portfolio companies create value by leveraging cross-portfolio purchases and the sharing of improved purchasing techniques.

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Our professionals have deep experience generating savings across a wide range of categories. We have sourced more than $30 billion in spend and have achieved significant savings across more than 100 spend categories (see below).

ABOUT ALVAREZ & MARSAL

Alvarez & Marsal (A&M) is a global professional services firm specializing in turnaround and interim management, performance improvement and business advisory services. A&M delivers specialist operational, consulting and industry expertise to management and investors seeking to accelerate performance, overcome challenges and maximize value across the corporate and investment lifecycles. Founded in 1983, the firm is known for its distinctive restructuring heritage, hands-on approach and relentless focus on execution and results. For more information, visit www.alvarezandmarsal.com

A&MS LEVERAGED SOURCING SAVINGS RESULTS (illustrative)

Category
Advertising and Promotion Distributed Computing Direct Mail / Commercial Paper and Office Supplies Office Equipment General Insurance Contract Labor Agency Compensation Office Furniture 25% 24% 23% 23% 23% 21% 20% 18% 18%

Category
Print Advertising Travel / Entertainment Packaging / Corrugated Telecom Mainframes Contract Programming Other HR Expenses Credit Card Fees Small Parcel 17% 15% 15% 14% 14% 13% 12% 12% 12%

Category
Facilities Freight / Logistics Temporary Labor Distributed MRO Healthcare Benefits Professional Services Software Utilities 12% 10% 9% 9% 9% 9% 9% 7%

Capital Projects Improvement 9%

THE CORE OF OUR OFFERING

Identify purchasing trends, product and service commonalities and marketplace value drivers Leverage similar purchasing patterns and overall scale across portfolio companies Use industry insight to better understand current market conditions, supplier strategies and potential opportunities for savings Facilitate the end-to-end sourcing process from which portfolio companies continue to benefit post-separation from the private equity parent Create value through the sharing of improved purchasing techniques

has hampered many portfolio-wide efforts. Recently, through the work of A&M and several private equity firms efforts, the supply market has started to recognize private equity as a significant opportunity area and has made changes to its business practices to encourage other private equity firms and their portfolio companies to look at leveraged procurement programs. This includes adding features such as portability of benefits at divestiture, automatic inclusion of new investments and unique contracts that avoid mutuality and long-term lock-in. There has never been a better time for private equity owners to look at portfolio-wide procurement programs particularly in light of softening markets, increased scrutiny on expenses, and an incredible pressure on returns. Through our professionals recent experience with over 25 private equity firms and their 200+ portfolio companies, private equity owners can potentially recognize quick, recurring, and non-disruptive benefits from leveraged procurement.

* NOTE: Alvarez & Marsal employs CPAs but is not a licensed CPA firm.

TAKING ACTION
Corporate entities have been using strategic sourcing programs to centralize business unitlevel spend for more than 20 years. However, the rules of engagement have always been unique in the private equity world, and the desire to avoid carve-out issues at divestiture

FOR MORE INFORMATION

Jeff Schlosser Managing Director +1 212 763 9680 jschlosser@alvarezandmarsal.com Eric Narsolis Senior Director +1 312 601 9061 fnarsolis@alvarezandmarsal.com Michael Simoncic Senior Director +1 312 714 3795 msimoncic@alvarezandmarsal.com

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