Private Equity Funds

Financial investors have discovered the investment potential of wholesale distribution businesses in many trade lines, including both platform and bolt-on transactions. No matter what the investment thesis is, Evergreen Consulting  conducts projects for rapid and sustainable gains in ROS and ROI. The payback on strategic pricing (SMART Pricing) and customer profitability (SMART CPA) projects may be less than three months.

Private equity funds have become active investors in distribution businesses and many funds now have one or more distributors in their current portfolios. Investors long hesitant to commit capital to slow-growth prosaic distribution businesses have discovered that the traditional low return on sales (ROS) in the distribution is more than compensated for by high asset turnover and substantial amounts of trade debt. The resulting return on investment % (ROI) is often 8-10 times the ROS %.

Acquiring distribution businesses that have not yet successfully implemented strategic pricing is an excellent opportunity to strengthen the buyer’s investment thesis. An overall margin increase of 200 basis points (BP) or more may be achieved with SMART Pricing depending on the target company’s industry and sales mix. Depending on management’s determination, an increase of this magnitude can be achieved within six months of implementation. The annualized increase in ROI of a 200 BP is in the range of 16 to 20 percentage points depending on asset turnover and leverage. The annualized investment payback on the project can be expressed in terms of weeks, not months or years.

Customer Profitability Analysis and Cost to Serve Analysis (SMART CPA) is built into each SMART Pricing project. Using proprietary cost allocation and assignment algorithms, we measure operating profit by customer, customer group, sales territory, branch and region. We use the insights to recommend tactics to increase order size and reduce cost to serve. We are also able to identify where and what price changes are needed by using pricing analytics to detect below market pricing.

Evergreen Consulting provides acquisition strategy,  target selection, negotiation, due diligence and integration advice for clients with whom we have an ongoing relationship.

Please contact Brent Grover (216 360 4600 ext 101) for further information.