Pooled purchasing might finally be gaining traction as private equity firms work overtime to squeeze every last savings out of their portfolio companies.
Employing this particular cost-cutting measure—basically, sharing expenses for everything from raw materials and stationary supplies to health care coverage among portfolio companies—seems to make almost too much sense. But the practice has only lurked around the edges of the private equity world since the beginning part of this decade. A new white paper from tax and advisory services provider Grant Thornton suggests more firms are taking notice.
A prime area where private equity firms can find savings is health care. And that’s good news because the cost of coverage continues to rise. The average corporate health benefit expenditure in 2009 will be $9,660 per employee, an increase of 6 percent over 2008, according to an annual survey from risk management consultant Towers Perrin. The Grant Thornton paper quotes an executive with UnitedHealthcare who works with private equity firms as saying they can save an average of 12 percent annually on health care costs when using a pooled purchase plan.
A number of buyout firms have already gotten in the act. One is The
The next phase of pooled purchasing could be firms partnering up with one another to pool costs across their respective portfolios.
The difficulty, especially for smaller shops, is having enough manpower to implement the changes and getting management of the various portfolio companies to sign on.