The Secret to a Successful Acquisition: Improve EBITDA By Improving Operational Efficiency

Due to rising interest rates, debt has increasingly gotten more expensive since 2020, and as a result buyout multiples for acquisitions have declined. With cheap debt no longer available, private equity firms and other acquirers now need to focus on operational improvement strategies to increase EBITDA post-acquisition in order to reach pre-2020 values.

In many of the markets that our customers operate in, the best path to improving margin typically involves reducing operational expenses and costs of goods sold. Identifying these opportunities during diligence will allow acquirers to incorporate them into their overall deal thesis and align with the target executive teams before the deal is done. This will help ensure that the firm has the right team to realize the desired value and a roadmap for getting started immediately post-acquisition.

Avatria offers services that support our customers in improving operational efficiency from diligence through execution and stabilization. Below we’ll discuss a few strategies many of our partners utilize to achieve their growth potential.

Opportunities to Improve Operational Efficiency

Below is a list of opportunities that we commonly see with manufacturers and distributors of all shapes and sizes. Making improvements in these areas will generally reduce cost of goods sold, customer service costs, and customer acquisition costs.

Process Automation

As companies scale it can be difficult to quickly staff up with experienced personnel. The best way to get more out of existing personnel is to look for opportunities to automate manual and mundane processes. Doing so can reduce staffing costs and eliminate costly errors.

Today, there are a myriad of process mining, analytics, and automation tools that have been super-charged with AI to maximize value, such as Celonis. In the absence of specific process optimization technologies, one can compare key analytics data against benchmarks to identify automation opportunities. Prime examples of automation opportunities we frequently find include customer onboarding, order automation, claims/returns processing, sample requests, and more.

Self-Service

A common operational inefficiency we’ve found is key team members (such as the sales team) being tasked with serving as the first line of customer service instead of focusing on their core job function. It’s not hard to imagine what having your sales team focus on duties other than selling will do to your customer acquisition rate.

Thankfully, most customers are now digital natives and are comfortable performing many of their tasks without interacting with human beings. It is only when they can’t figure out a way to complete a task that they gravitate toward their sales rep or another company representative. As such, it is critical that companies prioritize opportunities to use digital technologies to enable customer self-service as much as possible.

There are a multitude of common customer tasks that businesses have successfully made self-service. Beyond obvious examples such as product discovery, product configuration, and checking order/delivery statuses, consider whether editing orders, requesting quotes, managing company/user details and permissions, reviewing and approving orders, or customer support and Q&A are areas that can be managed without employee intervention.

Sales Assistants

As firms help their portfolios modernize it is important to ensure that sales teams are improving their efficiency by utilizing digital technologies as sales assistants. At every step in the deal funnel, digital technologies can be used to help sales teams provide more value to their prospects, service their customers, and help them improve their win ratio. There are numerous AI and other tools available that can now aid in website lead generation, product research and configuration, quote negotiation and pricing recommendations, purchase order entry and validation, and more.

Staffing Utility

One difficulty related to process optimization is that it is critical that all members of a newly acquired company remain focused on advancing their core business objectives after acquisition. So how do you implement the aforementioned efficiencies without creating more inefficiencies elsewhere?

Frequently, outside service providers are brought in to fill this gap. However, it can be expensive to hire good quality outside resources and experience has shown that you get what you pay for. Avatria’s answer to this challenge is our Concierge Services program, which provides fractional teams of experts for a fixed fee to support optimization initiatives. Since the resources are fractional, and we’re able to adjust the resource mix on demand, companies pay only for the capacity that they need. This strategy is almost always more cost-effective than using an internal team or booking a low-cost provider that requires each of their team members to be booked full time.

Asset Integration and Technology/Staff Consolidation

A core component of many strategies involves acquiring multiple companies in the same industry to increase product mix while consolidating resources by tightly integrating acquired assets. Unfortunately, this leads to a common challenge where each asset in the portfolio is running a totally separate tech stack for their digital storefront, portal, and/or informational site, creating new operational inefficiencies.

We have experience crafting an approach that works well for integrating new assets into the portfolio, typically involving the deployment of modern solutions that allow for consolidation of technologies and personnel. We have extensive experience in consolidating those solutions onto one instance of a modern tech stack and deploying individual storefronts in a “multi-site” approach. Read more about how we did this for Anixter and AmerCareRoyal.

Conclusion

As you can see, there are a number of ways that PE firms and acquirers can quickly improve EBITDA via operational improvements follow acquisition. If you’d like to speak to an expert about how Avatria can help roadmap your path to higher buyout multiples, contact us via the form below.