The average portfolio company is leaving $6M+ on the table.
Here’s the value creation lever most PE firms overlook – and why it matters more at exit than during ownership.
Private equity firms excel at operational improvements that drive enterprise value. Yet procurement – one of the most direct paths to EBITDA enhancement—remains systematically underutilized across portfolio companies.
Why? Procurement solutions built for Fortune 500 companies are prohibitively expensive for mid-market portfolio companies. And PE firms often lack the internal procurement bandwidth to capture these savings themselves.
The Numbers That Matter
The typical portfolio company with annual revenue of $50M-$1B sits in an uncomfortable middle ground:
- Too large to ignore procurement – yet too small for enterprise infrastructure
- SMBs pay ~20% more than large enterprise for the same goods and services
- $30M in spend = $6M in potential savings flowing straight to bottom line
But here’s what makes this really interesting:
A portfolio company trading at 8x EBITDA doesn’t just save $1M from procurement optimization – it creates $8M in enterprise value. That multiplier effect makes procurement one of the fastest ROI levers available, with returns typically materializing in 90-180 days.
Why Traditional Approaches Fall Short
PE firms and portfolio companies have historically had three options – none ideal:
1. Build internal capability:
$300K-$500K annually in salaries alone, plus significant technology costs. Attracting top procurement talent to mid-market companies is difficult. Payback periods stretch beyond typical PE holding periods.
2. Hire consultants:
Short-term gains that evaporate when they leave. Processes remain un-digitized. Compliance issues resurface. Not a sustainable solution.
3. Join a traditional GPO:
Limited to commoditized goods representing up to 20% of spend. Voucher codes to use on supplier sites = a poor user experience. Zero workflow automation and basic spend analytics leads to low compliance with users adding-back alternate suppliers.
The Digital GPO Alternative
This is where purpose-built solutions change the game. An electronic GPO such as Mulberri eGPO combines:
- Enterprise-grade procurement platform – workflow automation, invoice matching, payment processing
- Embedded GPO content – pre-negotiated rates for indirect spend
- Expert sourcing services – for higher-value direct spend and other unique spend categories
- Spend analytics – identify savings opportunities and track compliance
- Performance-based pricing – minimal upfront investment, with aligned incentives on value creation
Implementation: 30-100 days. That fits squarely within value creation planning cycles. New acquisitions can be enrolled in days, not months.
The Portfolio-Wide Advantage
Deploying across the portfolio creates compounding benefits:
- Benchmarking – identify outlier spending patterns across companies
- Best practice sharing – without forcing operational integration
- Standardized reporting – common metrics across diverse businesses
- Scalability – rapid deployment for new acquisitions
Each company maintains its own supplier relationships and purchasing decisions, but shared technology enables meaningful insights and continuous improvement.
The Bottom Line
Procurement optimization isn’t just about cost savings – it’s about creating sustainable enterprise value at scale.
That $1M in annual savings that creates $8M in enterprise value isn’t theoretical. It’s the mathematical result of improving margins in businesses that trade at EBITDA multiples.
The question isn’t whether procurement creates value. It’s why so many PE portfolios leave that value uncaptured.
PE professionals: What procurement challenges are you seeing in your portfolio companies? Drop a comment below – I’d love to hear your perspective.
Learn more about Mulberri’s eGPO solution at mulberri.com
Key Takeaways
- SMBs pay ~20% more for goods/services than enterprises
- $1M in procurement savings = $8M enterprise value at 8x EBITDA
- Traditional solutions don’t work: too expensive, too temporary, or too limited
- Digital GPOs combine technology + content + expertise with performance pricing
- 90-180 day ROI timeline fits PE value creation cycles
- Portfolio-wide deployment enables benchmarking and best practice sharing
