Private equity firms excel at identifying operational improvements that drive enterprise value. Yet procurement is one of the most direct paths to EBITDA enhancement and remains underutilized across portfolio companies. Traditional procurement solutions were built for large enterprises, not for small and mid-sized businesses. These solutions are prohibitively expensive and require large upfront investments in licensing fees and implementation. As a result, they are out of reach for most small to mid-size businesses.
The Portfolio Company Reality
Typical portfolio companies sit in a difficult middle ground. With annual revenues between 50 million and 1 billion dollars, they are too large to ignore procurement but too small to justify the infrastructure that enterprise buyers deploy. Many lack dedicated procurement teams, specialist analytics and sourcing systems, and the negotiating leverage that comes with scale.
The financial impact is measurable. SMBs spend around 20 percent more on goods and services than enterprise counterparts. This premium erodes EBITDA margins by more than two basis points. A company with 30 million dollars in annual spend may have as much as 6 million dollars in potential savings flowing straight to the bottom line.
The Value Creation Mathematics
Private equity investors measure value through EBITDA multiples. A company generating 5 million dollars in EBITDA and trading at 8x is valued at 40 million dollars. When procurement optimization reduces costs by 1 million dollars, that savings increases enterprise value by 8 million dollars.
This multiplier effect makes procurement one of the most efficient and accessible value creation levers. Unlike revenue growth initiatives that require market share expansion, cost reduction produces immediate measurable improvements. And unlike capital-intensive operational projects, procurement initiatives require minimal investment and typically generate returns within 90 to 180 days.
Why Traditional Solutions Fail Portfolio Companies
The procurement solutions market has historically offered two models that do not suit PE portfolio needs.
1. Building Internal Capability
This requires hiring procurement professionals, implementing software, and building vendor relationships. For a 30 million dollar business, salaries alone range from 200,000 to 400,000 dollars per year, not including technology and training. Payback periods often exceed PE holding periods, and attracting skilled talent to mid-market companies is a persistent challenge.
2. Traditional GPOs
GPOs aggregate buying power but operate with limited technology. They offer discounted pricing on basic categories, but lack workflow automation, analytics, and sourcing expertise. Purchasing requires the use of voucher codes across multiple supplier ecommerce sites, which is inefficient. GPOs also serve all members equally and provide no customization for PE timelines or reporting needs.
The Digital GPO Alternative
A modern model has emerged. It delivers procurement technology as a service combined with embedded GPO content and professional sourcing support. Instead of static catalogues and membership fees, this approach includes pre-negotiated purchasing content and expert services aligned through performance-based pricing.
Technology Benefits
The platform provides what SMBs lack:
- Workflow automation for purchase orders, invoice matching, and payments
- Spend analytics to identify savings opportunities
- Supplier management tools to track performance and compliance
- Easy integration with ERP and accounting systems
Service Benefits
Technology alone is not enough. Portfolio companies also gain:
- Access to pre-negotiated GPO deals
- Expertise across categories such as IT hardware, software, MRO, logistics, insurance, and travel
- Vendor negotiation and contract management
- Market intelligence for pricing trends and supply risks
For PE firms, the digital GPO model offers fast ROI with implementation in 30 to 60 days. Performance-based pricing eliminates upfront capital requirements and aligns incentives. Portfolio-wide deployment supports benchmarking and best practice sharing without forcing integration across companies.
Strategic Sourcing for Indirect Spend
Portfolio companies focus primarily on direct materials, but indirect spend often represents 20 percent or more of total cost. This category is frequently unmanaged and fragmented.
Challenges in Indirect Spend
- Decentralized purchasing decisions
- Limited visibility across departments
- Vendor sprawl and administrative burden
- Price increases accepted without negotiation
- Supply chain risks that disrupt operations
How Strategic Sourcing Helps
Strategic sourcing uses:
- Spend analytics to find consolidation opportunities
- Supplier scorecards to track performance
- Market intelligence for early risk signals
- Competitive tendering to reset pricing
Strategic Sourcing for Direct Spend
Direct materials may be well monitored, but opportunities remain. Supply chain teams often rely on known suppliers, many without formal agreements. Pricing goes unchallenged and periodic increases are accepted.
Using professional sourcing services and eRFX tools generates double digit savings. Alternate suppliers bid against incumbents, revealing true market pricing. Incumbents often match or beat market rates to retain business, leading to significant savings without operational disruption.
Implementation Considerations
PE firms evaluating procurement improvement should consider:
1. Timing
Savings compound over the holding period, so early action generates the greatest impact.
2. Standardization
Common frameworks and shared technology improve efficiency while retaining operational independence.
3. Management Attention
Regular reporting on savings, performance, and opportunities keeps procurement visible without overburdening executives.
The Competitive Advantage
As deal multiples remain elevated and operational improvements become harder to find, procurement stands out as an untapped opportunity. Companies that optimize purchasing reduce costs, improve margins, and become more attractive at exit.
Cloud platforms remove infrastructure barriers. Services-as-software models eliminate capital expenditure. Category expertise is now accessible without building internal teams.
The path forward is execution. Recognizing procurement as a value creation lever, deploying the right tools, and maintaining consistent measurement allows PE firms to unlock repeatable returns. A savings improvement of 1 million dollars creates 8 million dollars in enterprise value. The question is not whether procurement creates value but why so many portfolio companies leave that value unrealized.
Ready to Transform Procurement Across Your Portfolio?
Request a consultation to see how Mulberri can help your portfolio reduce costs and enhance enterprise value.
