Spring 2015 issue of Horizons

PRIVATE EQUITY

Will a sophisticated buyer, like a private equity firm, really pay for unrealized cost savings? Do you have any examples? Overboe: Sophisticated buyers generally don’t pay for theoretical savings, and due diligence providers, like RubinBrown, would always target any type of unsupported savings. When we can document that the savings are real and sustainable, many buyers are willing to proforma recent changes into their cash flow projections. We work with sellers to document cost savings so that they can demand a buyer incorporate the savings into their valuation model; thereby enabling the seller to realize full value. In your experience, are private equity firms today consistently utilizing international sourcing as a key area to drive costs savings and operational efficiencies in a business? Overboe: Most private equity firms have seen the benefits of global sourcing with some of their investments. It doesn’t take many multi- million dollar wins for them to consistently consider the value potential of global sourcing for all of their holdings.

What advice would you have for an owner of a manufacturing company that is looking to exit their business in the near future and is looking to maximize value? Overboe: Material cost is a large portion of many companies’ cost structure. Savvy buyers will only pay for material savings to the extent they are proven and may use supply chain risks as a negotiation tactic. Fully mitigating risk and realizing cost savings takes time so a potential seller should start that review process early. Bottom line, manufacturers of all sizes might have the opportunity to take advantage of international sourcing to save costs. If you are a seller, or might be some day, it is never too early to begin thinking about manufacturing efficiencies to ensure you get paid maximum value when exiting your business.

RubinBrown’s Private Equity Services Group RubinBrown offers private equity firms and their portfolio companies an integrated suite of business services aligned across the entire private equity life cycle.

Ben Barnes, CPA, CGMA Partner-In-Charge Private Equity Services Group 314.678.3531 ben.barnes@rubinbrown.com

Jeff Sackman, CPA, CGMA Partner & Vice Chair Private Equity Services Group 314.290.3406 jeff.sackman@rubinbrown.com

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