Most of our clients have 40%-50% gross margins BEFORE we start working with them. It’s great that your businesses are performing well, but chances are there are opportunities for margin enhancement by addressing cost.
From a focus standpoint, we’re here connecting with you because your incentives are tied to earnings growth, you buy a company and later sell it for more, and we can play a vital role in that.
Most of our clients are in some way or form in revolving around manufacturing, value added distribution, or consumer products, really lots of industries we can address
Normal revenues of $50M to $750M, we typically are staying in the middle market, so below $1B because we realize companies much larger than that may need a different service than the direct one on one solution we offer, and we get that. Also, we will under $50M if the spend category is significant enough.
Largely why we like working with private equity groups is because your incentives tied to earnings growth
How large of spend do we look for?John Shanahan2022-01-21T07:41:10-06:00
We’ve saved $1MM on $2MM of spend and we’ve saved $500K on $10MM of spend. It really depends on the category and where they’re buying it from.
We consider ourselves dealmakers, similar to you, that’s how strategic sourcing works similar to how you’re buying and selling companies. It’s not a matter of day to day purchasing that the guys in your company are already doing. It’s finding significant value add solutions, not to be viewed as a vendor but as a partner.
Do you aid private equity groups in Due Diligence?John Shanahan2022-01-21T07:47:07-06:00
Our typical sweet spot is a company with revenues of $50MM to $500MM, we’ve got clients lower and much higher. We don’t do companies over $1 billion in revenues that’s generally the McKinsey, Bain, BCG, etc. that will send in a group of analysts to camp out and put together white papers and not help implement anything. That’s not what we do. We’re here to come in find meaningful savings and work with the company to efficiently implement our solutions. Mostly, because we’re highly incentivized to do so since we are fully contingent fee based on realized savings.
What is a quick overview of the process?John Shanahan2022-01-21T08:08:28-06:00
A. We work one on one with the portfolio companies to go in do a spend review that is very quick and noninvasive. Hopefully, we can strike a cord with them that resonates and offers significant cost savings. Then we present those findings to the management team and see if they’re of interest and hopefully help them implement them.
How do you normally engage with companies?John Shanahan2022-01-26T15:33:48-06:00
Usually, it entails coming in pre-LOI and doing the “desk work” to review the CIM. Very high-level review checking supplier concentration & risk, checking where they’re current suppliers are located (Can we move them to quickly save?), and contract review & study for mark to market commodity inflation to when they negotiated the deal, they get a signing bonus but realistically they should re-negotiate and get those savings into EBITDA.
Functional view of risks and opportunities provides unique insight during due diligence.
Really what makes us different is that we have a proven cost reduction program that has been tested at hundreds of companies.
This is a process that was developed at large companies like General Electric where our Managing Partners spent an extensive time of their careers at.
Mentored by industry leaders.
Trusted by private equity firms
We’re trusted by private equity firms, our Partners spent 10+ years at Harbor Group working with individual portfolio companies on cost reductions and direct EBITDA improvements.
After, adding $110MM in EBITDA improvements to Harbor’s portfolio companies they started Forsyth in 2011 and have since worked with over 50+ private equity groups capturing over $150MM in cost reductions.
We’ve been active with boards, lenders, and LPs, so we understand what goes on behind the scenes and what your motivation is and your responsibilities to your LPs.
Success with middle market companies
We’ve had a lot of success with middle market companies, so that big company sourcing toolkit we’ve retooled that to work with middle market and lower middle market companies because the resource constraints are different there and the expectations are different there.
How do you create value for Portfolio Companies & PE?John Shanahan2022-01-21T07:52:06-06:00
When we talk about what we can do within your portfolio. Again, most of our engagements are directly with an individual company, we’re not doing a lot of cross portfolio things.
This briefly illustrates, if we can save someone a $1MM:
Not sure what your Exit Multiples are but we always use the 8x Multiple on exit so, if we’d save a $1MM that’s worth a $1MM of enterprise value when we sell which you know you know the math on this.
You know your carried interest is a $1.6MM on that and you’re returning $6.4MM to investors. And that’s just that’s just straight on the immediate EBITDA improvement.
If we’ve done that one two three four years before you actually sell it, you can use some of that cash flow cash flow that we’ve improved to pay down debt further increasing the value that you’ll get on exit.
How much time will this take us? We have many other initiatives going on.John Shanahan2022-01-26T15:30:26-06:00
How many of those initiatives are going to add $500k – $1M or more at the EBITDA line? Don’t you want to know what our opportunities could be worth? 15 minutes is all we need?
Our data request is simple. Supporting our assessment should take less than 10 hours of your companies combined time, including the presentation of our findings! Isn’t it worth 10 hours to find out if we could save $500k or more? Once you know the value of the opportunity, you can decide whether it’s worth pursuing.
What industries have you worked in?John Shanahan2022-01-21T08:09:25-06:00
A. Interesting spectrum of different companies. However, if the company is buying really raw materials (e.g. raw resin, raw steel), things that are indexed it’ll be a true commodity and be hard for us to find that step function change in cost structure.
On the other hand, if they’re only buying finished goods from a supplier that they don’t have real say in the parts that go into the product that’s also difficult for us.
Ideal client is a product-based business, that could be manufacturing or distribution. Some of the best projects we’ve had have been turn key things where we’ve set up a new product go to market; however, this is not our usual client. If you have a company that is buying widgets putting them together and selling B2B we will usually find some good opportunities.