SGS Maine Pointe's Joseph Esteves on creating sustainable value in uncertain times

Joseph Esteves, head of SGS Maine Pointe’s private equity practice, in a recent PE Hub article discussed the importance of creating enduring value and sustainability for private equity portfolio companies during periods of demand fluctuation.

While consistent demand may initially seem positive, it is inherently volatile and subject to various external factors beyond the control of private equity sponsors and portfolio CEOs. Therefore, it is crucial for companies to focus on how they create value during these times to ensure long-term success.

The article highlights that businesses facing demand fluctuations must adapt swiftly and implement effective strategies that address both immediate issues and future challenges. Portfolio companies can achieve enduring value by identifying opportunities for strategic cost reduction, enhancing efficiencies, mitigating risk, and improving cash flow. By adopting a mindset that moves beyond temporary demand disruptions, companies can foster lasting value, growth, and operational excellence.

Esteves emphasizes the importance of strategic cost savings in times of reduced demand, which can be realized through procurement optimization, logistics improvements, and operational efficiencies. The article provides a case study of a steel fabricator that re-evaluated its procurement strategy during a period of demand plateau. Through enhanced contract management, improved pricing visibility, and exploration of supplier options, the company achieved $15 million in real year-over-year savings and a sustainable 6.7% increase in Ebitda.

Furthermore, the article discusses the opportunity to renegotiate contracts and explore alternative suppliers to achieve better pricing and terms. This flexibility strengthens a company's competitive position and provides supply chain optionality. The article highlights how companies with such optionality were able to survive disruptions caused by the pandemic and benefit from reallocated supply chains. Global suppliers, hungry for business, present new opportunities for companies to create lasting value.

To achieve value creation, Esteves says companies should consider adopting SGS Maine Pointe’s Total Value Optimization methodology, which integrates excellence in logistics, operations, and procurement. A case study of a consumer goods client heavily dependent on China during the pandemic is provided, showing how incorporating supply chain optionality and diversifying suppliers resulted in $17 million in annualized cost savings and a remarkable 41% increase in Ebitda.

The article concludes by recommending proactive steps for portfolio company CEOs to navigate periods of reduced demand. It emphasizes the need for strategic navigation and agility to thrive in an ever-evolving market landscape. By continuously assessing and adapting to changing market conditions, companies can safeguard against demand-driven lulls and ensure long-term success.