A private equity firm was on the verge of bidding for a manufacturing company with a complex supply structure. The private equity firm had a strong grasp of the target's potential from a commercial standpoint, but they were concerned about underlying risk in the manufacturing and distribution operations.

The ProAction Group assessed the company's operations through site visits, data room information, and management commentary. We applied our due diligence tools to analyze five areas: safety, quality, delivery, cost, and morale. Most importantly, we evaluated any quality risks in their error-proofing system which ensures that the right product is manufactured, packaged, and shipped. We identified clear opportunities for cost reduction and working capital improvements.

ProAction concluded that there were no substantive risks to the potential investor. We found a sound, state-of-the-art manufacturing platform, disciplined processes, and available capacity, which would enable the company to meet its five year growth plan.

ProAction uncovered a potential $34.3 MM cash flow gain and a total of $10.9 MM in EBITDA improvements, which is achievable in two years. Several key areas presented opportunities:

• Inventory: Reducing lot sizes, changeover times, and the level of safety stock could improve inventory turns and increase cash flow by $34.3 MM
• Distribution: Using alternative distribution strategies could save $4.0 MM in EBITDA
• Transportation: Outsourcing activities could add $3.5 MM to EBITDA
• Manufacturing: $3.4 MM in EBITDA could be unlocked through the introduction of Lean Manufacturing tools and by increasing OEE (Overall Equipment Effectiveness)

ProAction's identification of EBITDA improvements and cash flow opportunities enabled our client to increase their bid for the target company and they ultimately won the auction.