era summary
DESCRIPTION
Overview of success-fee based operating cost savings from Expense Reduction AnalystsTRANSCRIPT
1
Creating value through expense reduction for financial sponsors, portfolio companies and corporations
2
Private equity firms and management have significant flexibility in working with ERA Introduce ERA to portfolio companies as a preferred advisor
Suggest management consider using ERA to achieve operating cost savings
Portfolio companies ultimately make final decision and chooses cost categories for review by ERA
Work directly with private equity firms if appropriate
Execute post-closing expense reduction projects for portfolio companies
Ensure operating expenses are optimized
Maximize cash flow available for pay down of debt
Identify operating cost savings during post-LOI due diligence process
Help refine cost synergies and level of attractiveness of business
Provide additional clarity around valuation
3
Key considerations
Fees / Compensation
Potential concerns
Flexible compensation model Success-based or fixed fee Combination or tiered pricing Payments over time or upfront
Incentives highly aligned
Mitigating factors
Project timing Benchmark costs in < 14 days for pre-closing assignments
Full procurement process in 30 to 60 days using proprietary web-based software / tools
Data requirements Data collection in hours
Data generally provided electronically General ledger and accounts payable Data from supplier
Invoices and contracts
4
ERA’s illustrative fees generate attractive returns – low opex example
* For key assumptions, including illustrative fees, contact Andre Stokes
Portfolio company cash flow
Month (selected shown) 0 6 12 18 24 25
ERA deposit ($30,000) - - - - -
Portfolio company savings - $7,500 $7,500 $7,500 $7,500 $12,500
Exit value at 7.0x - - - - - $1,050,000
Total cash flow ($30,000) $7,500 $7,500 $7,500 $7,500 $1,062,500
Discount factor 1.00 0.88 0.77 0.67 0.59 0.58
Present value ($30,000) $6,578 $5,769 $5,060 $4,438 $615,102
Net present value & IRR sensitivityExit Multiple
6.0x 7.0x 8.0x
20% $743,815 $846,411 $949,007
Return on Equity
30% $636,794 $723,632 $810,470
40% $551,872 $626,286 $700,701
IRR 1706% 1749% 1789%
5
ERA’s illustrative fees generate attractive returns – high opex example
Portfolio company cash flow
Month (selected shown) 0 3 6 9 12 13
ERA deposit ($30,000) - - - - -
Portfolio company savings - $43,500 $43,500 $43,500 $43,500 $50,000
Exit value at 7.0x - - - - - $4,200,000
Total cash flow ($30,000) $43,500 $43,500 $43,500 $43,500 $4,250,000
Discount factor 1.00 0.94 0.88 0.82 0.77 0.75
Present value ($30,000) $40,738 $38,152 $35,730 $33,462 $3,198,529
Net present value & IRR sensitivityExit Multiple
6.0x 7.0x 8.0x
20% $3,439,366 $3,931,826 $4,424,287
Return on Equity
30% $3,171,110 $3,622,667 $4,074,224
40% $2,942,125 $3,358,846 $3,775,568
IRR 6257400% 6263261% 6269117%
* For key assumptions, including illustrative fees, contact Andre Stokes
6
TSG Consumer Partners case study
Manufacturers of a full line of beauty products sold in 40 countries
Reduced LTL freight expenses 34%
Small package freight reduced 30%
Total annual savings of $375,000 per year
Sports supplements manufacturer and makers of Muscle Milk
Cut merchant card fees 42%
Office supplies decreased 29%
Employment services (temp labor) down 13%
Telecom reduced 19%
Total savings of $260,500 per year
7
Specialists in reducing non-headcount operating costs
Founded in 1992 in the United Kingdom
700 consultants in 30 countries – 250 consultants in the US
Consultants average 15-20 years experience in their respective industries
Proprietary benchmark data from more than 14,000 projects
Success-based compensation model – no savings no fee
Implement, then monitor and audit for 24 months to ensure savings
Expense Reduction Analysts overview
8
Consultants with 15-20 years experience across a variety of industriesAccounting / Consulting Banking / Insurance Consumer / Retail
Industrials Services Technology / Telecom
9
The ERA process yields predictable results:
Savings in 91% of projects
67% of projects remain with the incumbent supplier
Realize 101% of predicted savings
Average cost savings of 20%
* Based on over 14,000 projects completed or under review
10
Why ERA is consistently able to find average savings of 20%
Organizations concerned about redirecting critical resources away from essential activities
Appropriately focused on core business
Typical ERA process requires only 4–6 hours of client time
Organizations fear they lack the most relevant market benchmarking data and national purchasing power
Pricing comparisons by industry, company size and location (local, regional and national)
ERA capable of drilling down to pricing at SKU level
Negotiate volume discounts clients cannot achieve alone
Organizations uncomfortable with their false confidence regarding the competitiveness of their supplier agreements
11
The ERA process
12
Accounting Services Air & Ocean Freight Bank Service Fees Chemicals Cleaning Supplies Document Storage Factory Consumables Fleet Management Food Service Insurance (P&C, Benefits, W.C.) Information Technology Janitorial Contracts Laboratory Supplies Leased Equipment LTL / FTL Freight
Expense category expertise
Medical Supplies Merchant Card Processing Office Supplies Packaging Payroll Processing / HR Admin Print Services Shipping Consumables Small Package Freight Tax Evaluation Telecommunications Temporary Personnel Travel & Entertainment Uniforms Rental & Cleaning Utilities (Gas, Electric, etc.) Waste Management
13
Case studies – office supplies
Client — Regional hospital network
Spend — $370,000
Annual Savings — 33% average over 3-year contract
Hidden Savings — $400,000 over 3-year contract
Client — DC Law firm
Spend — $330,000
Annual Savings — 25.5%
Hidden Savings — $82,500 a year____________________________
Three-year contract with the existing supplier beat national GPO pricing
14
Client — Engineering firm 200 employees
Spend — $38,000
Annual Savings — 28%
Hidden Savings — $10,500
Client — Nasdaq-listed
Global Technology Company
1,300 employees
Spend — $150,000
Annual Savings — 45%
Hidden Savings — $67,500 a year ____________________________
Many companies rely on big industry players, but end up paying for features they do not use
Case studies – payroll processing / HR admin
15
Client — Advertising Agency
Annual Spend - $480,000
Annual Savings — 25%
Client return on time invested = $11,500 an hour ____________________________
Client — Northern Kentucky Chamber
Annual Savings — 43% year one; 41% every year thereafter
Client return on time invested = $4,800 an hour
“ERA Consultants are amazing in uncovering hidden or unnecessary costs.”
~ Steve Stevens, President Northern Kentucky Chamber of Commerce
Case studies – telecommunications
16
Client — National restaurant chain
Spend — $842,000
Annual Savings — 19%
Hidden Savings — $162,000
Client — Sun Microstamping Technologies
Spend — $38,000
Annual Savings — 37%
Hidden Savings — $14,000 a year
____________________________
Clients are often told theyare getting the best pricespossible. ERA industry knowledge and benchmark data counter these assertions.
Case studies – waste management
17
13%
Client — NutriSystem
Spend — $370,000
Annual Savings — 59%
Hidden Savings — $220,000 a year
____________________________
Client — Goodwill of the Heartland
Spend — $84,000
Annual Savings — 25%
Hidden Savings — $21,000 a year
“It didn’t take me long to appreciate ERA’s professionalism and innovation.”
~ Tammie Erb, CFO Goodwill of the Heartland
Case studies – merchant card processing
18
Andre Stokes, Director Andre Stokes Andre has over 20 years of business strategy, corporate development, and
finance experience with management consulting, investment banking and government
organizations.
He has strong management and leadership skills that include managing project teams and
advisors, negotiating favorable terms with counterparties, and clearly and objectively
presenting opportunities to senior executives.
Andre’s broad expertise includes business development, contract negotiations, strategic
planning, cost management, operational assessments, due diligence, private equity, M&A
and financings
As an ERA consultant, Andre works with clients across the U.S. to help improve cash flow from
projects ranging from bank fees, food service, freight, insurance, merchant card fees, office
supplies, payroll processing, waste management and others to more specialized areas such
as R&D tax credits, accounting and back office outsourcing and receivables financing.
Prior to ERA, Andre served as co-head of the merchant card processing practice at First
Annapolis Consulting where he managed numerous projects. Among other projects, he
performed a financial and operational assessment of a top 10 credit card issuer’s data
processing and back office servicing environment. He evaluated and negotiated outsourcing
contracts that resulted in savings of $10 million per year.
At Credit Suisse, Andre managed many financing and M&A projects, including an alternative
telecom provider’s acquisition of a $4 billion long-distance provider and subsequent $430
million high yield offering.
Andre holds a BSME from the U.S. Naval Academy and an MBA from Harvard Business School.
Expense Reduction Analysts11400 West Olympic BlvdSuite 200Los Angeles, CA 90064
T 877.372.9201F 310.684.5775M 646.270.0869