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Case study

Operational Due Diligence Paves the Way for a Successful Merger

A private equity firm creates an industry heavyweight, confident that the synergies will really be there.


Synergies across distribution, procurement, and G&A


Synergies across distribution, procurement, and G&A

The Story

A private equity firm was evaluating a potentially game-changing merger, one that would not only shake up the distribution sector but also be one of the most important deals in the firm’s history. Such an aggressive move required a careful analysis of the potential synergies, of course, but we went further: our multi-faceted team ensured that the proposed deal was framed in the context of its full potential. 

We began by applying our operational due diligence expertise to help the firm gain a detailed understanding of synergies in three primary areas—facility footprint, procurement, and G&A. We also helped them size the additional opportunities stemming from increased efficiency and business optimization.

Given the enhanced buying power of the merged entity (we’ll call it NewCo), procurement held the promise of $50–$75 million in cost opportunities. Our analysis broke that down as follows:

  • SKU cost harmonization: $15–$20M
  • Alignment of vendor programs (including rebates and discounts): $20–$25M
  • Increased scale with vendors: $10–$20M

We also identified several areas where NewCo could reap significant benefits from its merchandising and private label activities, through sourcing strategies that would boost margins and from increased penetration in several key product categories. Some of our work in this area took advantage of our new AI-powered procurement analysis capabilities. Combined, those synergy and optimization efforts could yield a total cost opportunity of $30 million  to $35 million.

Our deep experience in distribution strategies and our unquestioned leadership in distribution due diligence (aided by a mapping tool developed by our advanced analytics team) combined to identify a footprint optimization strategy that could produce cost opportunities of $25–$30 million, stemming from distribution-center consolidation and efficiencies within the acquired company’s existing footprint. As mentioned above, our deeper analysis of additional value creation opportunities would address, among other things, a blank-sheet reimagining of distribution that could include the creation of new “super hubs” to support additional consolidation and growth. 

NewCo was also well-positioned to achieve significant savings in G&A. Using Aura, our workforce-analysis platform, we provided detailed peer and competitor benchmarks so that NewCo could envision the most effective operating model. We also quantified potential savings in categories ranging from software and office supplies to bank and credit card fees, marketing and advertising, as well as travel and entertainment.  Cost opportunities across G&A totaled approximately 15% of the combined companies’ cost base.

All told, synergies across distribution, procurement, and G&A totaled around $100–$150 million, with an additional $60 million in potential cost opportunities through business optimization and increased operational efficiencies, or 3% to 4% of NewCo’s cost base. As a result of our industry-leading expertise in operational due diligence, supported by a wide array of powerful proprietary tools and benchmarks, our client was able to move from initial outreach to deal closure in just a few months. NewCo was well-placed for a fast start on day one, and we continue to work with them to achieve the anticipated synergies well ahead of schedule.

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