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How private equity firms create value for trades-related service companies

October 15, 2021

How private equity firms create value for trades-related service companies

Synopsis
4 Minute Read

In the trades and related business services sector, many small- and mid-sized firms compete effectively, albeit sub-optimally. Private equity firms, and the best-in-class management teams they work with, can provide a fresh perspective to add value and help your company gain a competitive edge.

Senior Manager, Advisory - Energy and Utilities

In the trades and related business services sector, many small- and mid-sized firms compete effectively, albeit sub-optimally. Private equity firms, and the best-in-class management teams they work with, can provide a fresh perspective to add value and help your company gain a competitive edge.

How? MNP’s Graeme Wedge shared his insights, as a panelist in a discussion held as part of the Association for Corporate Growth’s (Toronto Chapter) value creation series:

What are the major differentiators in your space, relative to the more office-based services or professional services, from the perspective of adding value to these companies?

According to Graeme, it’s critical to understand service delivery. There may be some value creation points, such as developing a formalized asset management program, he said. Other options to consider include supply chain harmonization, for greater purchasing power; vertical integration - merging or consolidating companies to add value; fleet rationalization, particularly for companies with large vehicle fleets; and leveraging automatic vehicle location technology to optimize routes.

What are some of the trade-offs of acquiring companies versus expanding marketing, particularly when entering a new market (city)?

“In the services and trades-based industries, trust, reputation and reliability are huge to customers,” Graeme said. Typically, it’s difficult to dislodge incumbents, unless you have a new product or offer a large difference in pricing, he noted. If you’re considering moving into a new city or region, consider the capital investments and start-up time required. “That’s the main difference when considering either buying a company in a particular area or taking an existing company and moving to a new market.”

What additional complexities are there in a unionized environment?

“It’s really important to have knowledgeable labor relations staff and understand that the union is a stakeholder.” Graeme said. Also importantly is for managers to understand the union collective agreements, especially in the context of mergers and acquisitions, and to understand what employees will and will not do in the context of the collective agreement details.

“Don’t assume you can make significant operational changes without a formal change management program and union consultations.” Make sure there are clearly articulated formal job roles and responsibilities. This also includes for management roles, so they understand, and abide by the collective agreement, he added.

How do you attract talent, and how do you retain talent?

A good working environment is key. “The best trades people will go to the best companies and will stay.”

To attract the best workers, Graeme advised looking at the compensation package as a whole, which could include perks, such as optimizing scheduling and including incentives; safety achievement incentives; and career development and skills training. Also make sure you’re investing in management training as well to help retain talent.

What are some of the ways you drive sales growth?

Management consultants will often look at processes or departments that are not functioning well and are inefficient. For example, sales and marketing teams might be siloed, regionalized or underperforming. When specialists or consultants are brought in to help a company reorganize, rebuild and improve the operations of a sales team, “this doesn’t necessarily increase sales per se, but it does reduce costs and improves the bottom line,” Graeme noted.

For businesses that contain a significant amount of product sales, what kind of work do you do to steer the business more toward services?

Companies could pursue value-added strategies and value creation in a variety of ways –for instance, by becoming more vertically integrated. For example, a company that sells products could consider expanding into service maintenance or emergency repairs; or a fabrication or a manufacturing company could move into assembly.

What kind of work do you do in terms of major product lines for companies represented that renegotiate, change their main vendor?

“There could be value creation in consolidating vendors,” Graeme said, noting that often, companies are focused on delivering the work, but haven’t taken the time to evaluate their overall supply chain and procurement strategy. Taking the time to optimize their entire procurement strategy and supply chain is important and could result in better purchasing power.

Offering new products could lead to savings or increased sales, Graeme noted. However, trying something new is not without risk, he added.  “You may move to a new product, but it may not have an established supply chain. When you’re starting to develop this strategy and going after procurement for different materials and suppliers, make sure you spend the time to develop a very balanced strategy, and consider all of these risks.”

Contact

For more information, contact Graeme Wedge, Senior Manager, Consulting Energy and Utilities, at 416.260.3516, email: [email protected]

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