Mert Erkan | Driving Private Equity Value through Supply Chain Optimization

Speaker A: Foreign.

Speaker B: Stroth, trusted authority and executive and transactional liability and national practice leader for mergers and acquisitions for Liberty Co. Insurance brokers where we provide peace of mind with great care. Welcome to M and A Masters where I speak with leading experts in mergers and acquisitions. And we're all about one thing here that's a clean exit for owners, founders and their investors. Today I'm joined by Merritt Ericin, Vice president of Officio Consulting. Merit plays a key role in executing Efficio's international growth strategy. Assisting private equity and other acquirers with large procurement transformation engagements which there's a lot there to unpack. Merit, so great to have you. Welcome to the podcast.

Speaker A: Thanks Patrick. Great to be here.

Speaker B: Now Mark, before we get into Aficio consulting, in that entire world of uh, major M engagements that you guys are involved in, let's start with you. How did you get to this point in your career?

Speaker A: I'm um, one of the partners at Efficio joined the firm 13 years ago. Today I co lead our private equity business out of New York and prior to Efficio I was with another consultancy and before that started my career with an investment banking their M and A team.

Speaker B: So let's talk about Efficio Consulting. Exactly what is the type of consulting services? The scope is international. So give us that picture please Mer.

Speaker A: Of course. Uh, Efficio is the largest international procurement and supply chain consultancy. We are a specialist firm with 1500 people, 50 different nationalities across 18 offices around the world and in North America, 70% of our uh, revenue is, is coming through private equity on clients. However internationally we have many large corporate or public sector uh, client base as well. We work across the sectors from technology, industrials, pharma, healthcare, financial services, to the likes of infrastructure, utilities, consumer goods, retail and many others. What we are known for is really being hands on, um, working together with our clients side by side, delivering results and making them a lot faster, a lot more effective, helping them to build their competency in procurement supply chain.

Speaker B: Talk about how large your fistview is, how many people are there, where's your reach? Is it global?

Speaker A: It is completely global. Uh, so we have coverage across North America, Europe, Asia, Middle east and we are at the moment 1500 people, uh, with 50 different nationalities as I was mentioning.

Speaker B: And so you're on the macro side, the large side of M and A with massive strategic acquirers and then you've got, and you're leading the private equity practice. So let's talk about this type of consulting in the scope of M and A because I Can just imagine that when we're at scale there are thousands of parts and locations spread throughout the globe. Somebody's got to make sense of it. And you know, I'm sure it's plays a real big role in a decision whether to acquire a target or not. So let's talk about that as what do you do specifically with regard to mergers and acquisitions consulting situations?

Speaker A: Procurement and supply chain often represent 25 to 50% of the synergy potential. Obviously depending on the industry and specific acquisition case. The opportunities are really high for many industries from healthcare manufacturing to tech business, high growth business. And you can drive your EBITDA uh by 25 to 35% through procurement and supply chain basically. And in addition to that for a lot of businesses today, their growth is highly supported by their partners suppliers. Therefore there is a strategic focuses uh for the businesses on procurement, supply chain, same thing, you know, on risk management, securing supply. Exactly. Like you said, it is a highly strategic topic.

Speaker B: Well, I can imagine. I think uh, early along I learned what a lot of people don't realize that the significant expense is not personnel for a company is moving goods and services and supplies from point A to point B through the entire manufacturing process which a lot of us who were not you know, hands on with manufacturing just don't realize all the different steps and as, as you said that could have a massive impact. Talk about some of the areas where that could happen because I can imagine, you know the objective is not only to expand markets or capabilities but also to reach efficiencies for, for an acquirer. So talk about some of the you know, decisions that are, they're working into that and how you can help with those priorities.

Speaker A: Absolutely. The way we help uh, our clients in you know, M and A similar in carve outs a lot of private equity investments is so first before the investment cycle. So in the M and a case that could be a clean room where basically we look at both of the companies or three companies, you know, supply base, right. Their spend level suppliers, contracts and develop a really detailed plan um, together with them by respecting the clean room rules obviously which enables companies on day one to start benefiting uh, from these synergies, executing these synergies. And that brings a lot of momentum, a lot of high spirits to prove to the investors, to the board, to the management team, look, the merger is working. So the speed uh, to get to these um, synergy targets is also always massively important.

Speaker B: Execution. I think it's execution.

Speaker A: Yeah, exactly. The ability to execute this and through procurement and supply chain you have that opportunity, you can get to some of these synergies and we often exit these synergies with speed, uh, which brings a lot of momentum. Uh, as I mentioned and the other way to look at this is basically a lot of companies, the procurement supply chain is still unfortunately the underinvested area. So this is majority of our work. We provide boots on the ground executing these opportunities together with our clients, maximizing these based on our expertise, benchmarks, best practices, some of our AI solutions to maximize benefits and get there faster. While you're doing that, I think in every M and A case you gotta keep a very close eye on how you're building the required uh, competency required team in place so you can deliver these benefits but also sustain these benefits and keep delivering year on value on, on top.

Speaker B: I can imagine sometimes when you're doing the research on a target, you identify inefficiencies or other issues that once you guys are brought in you can add tremendous value and really amp up the, the value of the target. So the buyer is actually getting it at a discount.

Speaker A: Absolutely. This is uh, one of the reasons private equity actually has been quite effective for a uh, you know, for a long time I would say now making sure that procurement supply chain is very often on the management team's agenda. It is prioritized. It requires the you know, required C level support which is required for success always. Uh, and then by leveraging, taking, pulling these levers, executing these benefits, it adds tremendous value to the valuation multipliers. As I was mentioning, if you're able to lift your EBITDA by 20%, 30%, 35% that is um, fundamentally going to support your investment case and exit case.

Speaker B: I can see where private equity may have because they have a different perspective when they're making an acquisition because it's more an investment and they're going to try to build a value and then, and then exit. Whereas a strategic um, their, their job is whatever their business is, making widgets. I am simplistic here but making widgets

Speaker A: and this is the way we can

Speaker B: make more widgets faster. Whatever private equity comes in and says well we're going to find a more efficient way and it's that focus on efficiency that delivers higher returns. And I think, I think as you mentioned earlier, and we're going to talk about this with a certain supply chain hasn't had a lot of attention to it. Now the new perspectives coming in and with your help they're identifying those pain points and providing solutions.

Speaker A: Absolutely correct. I think what has been really interesting in the recent years, right, we have had clients going through inflation crisis. Their whole annual level of EBITDA is stolen, uh, through the inflation crisis, by the inflation crisis. In the past, this type of crisis used to come maybe every five years, every three years, you know, you would optimize something and you would feel uh, comfortable that will remain stable the next three years, five years. These days, um, the volatility is definitely high and it seems like it will continue being so, which is even having an impact on the M and A and carve out levels of activity. And to deal with that type of environment, uh, with this type of tariffs or inflation crisis, you just need to be really prepared. And what does that mean in practical terms? You need to have the competency in place and you need to be able to cope with ups and downs. And what we are seeing is an organization for many companies, they have 50 plus different levels of um, areas they need to manage, right from direct expenditure, indirect expenditure, technology, spend categories, logistics, packaging, whatnot. And it is really difficult to have the best expert in the world in your team all the time. So yes, you need to have a really good team, but also you need to build into that agility in your organization, build some partnerships like, you know, with us or similar firms to pull in when you need the expertise, when you need the uh, you know, delivery power, engine power to cope with these, you know, uh, ups and downs in the market is, is, is you know, fundamentally critical for businesses as of today.

Speaker B: So that could be just a specialist that comes in. I mean, I'm just thinking as a pro golfer would need a swing coach not for every tournament, but every once in a while if they're anticipating some things, uh, are, are devolving, bring, bring that fresh set of eyes in and then in, out. And with what's happening out in, in business today is dynamic. So having uh, a partner like a Physio Consulting that not only has the size but the scope and depth of capability out there, bring them in, quick turnaround, quick tweaks, and then, and then back out again until you need them again, right?

Speaker A: Absolutely. You're absolutely correct. That's it. Yeah.

Speaker B: You mentioned two things in there. First of all is um, dealing with people and technology. So let's talk about the technology side because when we think about these large procurement engagements, we're thinking about factories and operating systems, machines, robots and so forth. Talk about technology, because that's a huge stack that people take for granted.

Speaker A: So there is a lot of change happening in procurement, technology World with AI, um, we are seeing some efficiency. So as a FIRM we have 100 plus people in our digital team. We have been testing, building some of our own AI solutions. Very practical things like how you can uh, vist through, read, analyze uh 5000 contracts or can you do that with 1 million rows of data, uh, invoicing data to build, you know, good baseline, good uh, insights on a span category or how you can enable AI on some supplier research or some of the, you know, tender RFP package build. So there are definitely, you know, huge opportunities, um, which can help individuals to get more productive. One very key aspect we keep doubling down is well you might have the best Formula one car in the world. You still probably need a driver. I know with the AI you may not need a driver one day, but what we see on the ground is you still need a good, you know, ambitious analytics which own capable team to take the most out of it. Uh, and you know, to increase your effectiveness as a team. You can increase the amount of, you know, number of tenders you're running, maybe number of negotiations you're running. You can maybe be faster, you know, analyzing certain data or finding some benchmarks, running more negotiations at the back of it. So what I'm trying to get to is I think by leveraging some of these tools and capabilities which has been growing in the market, you can do more as a team rather than thinking I can have a smaller procurement team as of today. Procurement supply chain teams as I was mentioning is already historically has been quite underinvested anyway. So I think this is an opportunity for us as a community to keep our growth journey continuing on that path forward. So it is very exciting. There are a lot of options emerging but again we got to keep it real, we got to test things on specifics and grow things. Um, at the back of that is what we are doing as a team. And on the flip side of some of this traditional S2P end to end procurement supply chain technology, uh, I think we have not been seeing a lot of change on that front. Meaning the opportunities, capabilities are there, some of the challenges, gaps are still there as well. And again there are ways you can complement uh, some of those gaps, some of those opportunities with higher uh, level of analytics data competency in your team, but also with AI and uh, some similar target solutions out there in the market.

Speaker B: We'll get into you defining the profile of your ideal client. Before I do that though, I did want to ask because we're talking about everything in the M and A realm, uh, Is Aficio Consulting regularly engaged on just companies that are in operation and they're either flatline or not hitting their marks and they have you come to help diagnose?

Speaker A: Absolutely, yes. I mean in many of our recent uh, M and A, uh cases, I'll give a couple of examples. So we have been working for a food manufacturer, for instance, for an insurance company, for a healthcare company. In all of these cases, uh, M and A synergies as I was mentioning at the beginning, were around 25 to 50% of the total synergy value which is fundamental to that uh, super critical form that M and A investment case. So people call us in before uh, the deal is closed for a clean room and or after the deal is closed to execute to maximize these opportunities uh, across supply chain, third party spend and workforce where we do it all and the opportunity for a lot of firms. Well as we know there are some growth challenges, uh, top line challenges for a lot of firms. So it is the time now where we are seeing from a lot of our clients, you gotta keep optimizing uh, your operations supply base to keep improving your margin.

Speaker B: Well, let's go into this. Why don't you give me a profile of your ideal client who is uh, Afircio Consulting looking to serve.

Speaker A: Yes. So before I answer that question, I'll give you another interesting example. We have another recent retail client. Um, their revenue is around 800 million and they have been traditionally I've been working a lot with China and a lot of their competitors. You know, last three years, five years, they have been building a lot more optionality with other countries, uh, where you can actually you know, support your supply chain, manufacture your uh, products and bring it back home and sell them. So now this company, back to your good terrorist point. There is a lot of challenges in front of this company. While some other competitors have the optionality, have the resilience and agility already baked in into supply chain. While this company, they need a lot of help uh, to keep rebuilding uh, that supply chain. That's one example. So the people who are trying to deliver some EBITDA and cash improvement through their supply chain and third party spend, people who are ensuring they have the resilience, uh, supply, security, managing all of that risk, they reach out people who want to build with speed, you know, construction companies or infrastructure projects or companies, as I was saying, they're looking into new product development through their supply chain procurement partnerships. All these clients, uh, or firms, they reach out to us to you know, get, get our support. To answer your question, Specifically Patrick, our clients are you know, across the industries. We work a lot with, uh, industrials, tech companies, healthcare, pharma, financial services, utilities, infrastructure, consumer good retail and many other uh, you know, specialist industries or subsectors. What I would say things like, you know, the restaurant groups or healthcare tech and so on. You know, we have many uh, technology clients, you know, large technology clients, but also small technology clients where their revenue might be 300, 400. And we still, you know, find consistently same level of opportunities to improve their EBITDA and cash position.

Speaker B: And these are going to be, these can be pure domestic companies, not, not just companies that are doing international trade and so forth.

Speaker A: Absolutely.

Speaker B: Is there a minimum headcount in terms of size employees?

Speaker A: I would say, I would say no. Uh, there's no minimum headcount. I think the, you know, the revenue level, spend levels, uh, I was referring to, um, we don't have a specific because what is interesting on the number of employee side, it can be you know, heavily outsourced business or heavily sourced business which uh, which can be you know, misguiding us. But yeah, we have many small to large clients basically.

Speaker B: You had mentioned earlier about how, you know, there's volatile uh, volatility throughout the environment right now for business and this is a tough ask, but can you tell us what trends do you see going forward? We touched on tariffs. A lot of people that top of mind. You've got the interest rates and other things top of mind. But from your perspective with officio consulting, uh, you know, what do you see going forward as we go into 2026?

Speaker A: So that's a great question. Mhm. Regardless of your human ah, services, business, people business or a hardcore product business. I think one thing what we see, a lot of firms are really thinking twice about their uh, network basically this can be your workforce network around the world. This can be your good supply chain. Where are you manufacturing, where are you storing? How do you distributing network and optimizing that network, building optionality, building some resilience and doing some risk planning around it is key. And to do these things well, as I was mentioning, the second trend really is the war for talent continues. Uh, so you really need to take it serious across all your, you know, directs indirects, uh, expenditures, supply chain, what type of team you need to build and really leverage these external partnerships you can build because when crisis happens you need agility, you may need some extra capacity, extra expertise. And if you are used as an organization, working in that way, you have some strong partnerships that's going to put you on the, on the front foot and because if you're not used to it, well then the crisis happens. It's just too late to get yourself used to you know, building some relationships and bringing these people, these people on. And obviously the biggest trend as you all talk these days is, is the AI uh right. And AI, we talked a bit about that. I think we all need to you know, educate ourselves. Uh, that's, that's this interesting fact when we interact with people on the ground, you know with a lot of our colleagues, clients, majority of the people we have not uh, even just tested trial things. How, how I can increase my own personal productivity. What type of, you know some. I think we all get very excited to talk about really large visionary things end to end and what you know the future can look like. That's so great. But I think we gotta uh, also start taking advantage step by step by using some really practical tools, finding those and improving our own productivity as the, as the functions and this can be you know from again there are some very practical tools. We build also some other partners uh, we know out there built in terms of what the uh, spend, uh categories, you know, are they going to go up or go down. So we used to do some in depth research back in the day. It used to take us weeks time, you know months. People didn't have that type type of time these days. A lot easier. It just takes hours, days. And same applies to some of the complex, you know, the usual operational complexity. We deal as procurement professionals with some invoicing data, uh, contracting data, uh, dealing with large you know, RFP volumes. That all gets a lot easier. Easier with some tools but also with the growing talent around the world.

Speaker B: Yeah. Your observation earlier on AI, I'm actually going to steal it because you can build the fastest, most agile Formula one race car but you need a driver and that's why you're still going to need humans in this and say it's a wonderful tool to get you from point A to point B a lot faster. Uh but you've got to have somebody that's going to get you there, you know, safely and, and you know get to the right destination, not the wrong destination. So I, there, there's a lot going on but I think that there's a lot of dynamic elements out there. I think a lot of it is, is going upwards. There's actually more abundance and scarcity that is happening. And Efficio Consulting is a firm that's going to help a lot of companies get from point A to point B. So, I mean, what. What a real pleasure. Uh, Erican from Efficio Consulting. How can our audience members find you?

Speaker A: You can reach me on LinkedIn. My name there is, uh, Mert Arkan. And my email address is mert.arkanfficio.com. it is also on our website. If you just Google my name, that will come up.

Speaker B: And for us Californians, Mert is spelled M M, E, R, T. Okay. Uh, and so, Mert Erican, it's a real pleasure having you here on the show. Thanks again for a lot of your perspectives, because we don't get to see things on the macro level like this. So thanks again for being here.

Speaker A: Thanks a lot, Patrick. Have a great weekend.