Most private equity firms are disciplined about revenue growth, pricing strategy, and SG&A efficiency. Yet in many platform companies, the largest cost line — direct materials — receives far less structural scrutiny. That's often where meaningful EBITDA is hiding.

Many businesses report 2–3% annual savings from within their supply chain. But in our experience, when sourcing hasn't been fully pressure-tested against the market, 8–15% structural cost opportunity often exists within the supply base. Not because management lacks effort — but because the sourcing model itself hasn't been fundamentally challenged.

8–15%Structural Opportunity
When executed rigorously, strategic sourcing becomes one of the fastest and most controllable ways to expand EBITDA. More importantly, it drives value at every stage of the investment lifecycle — at entry, during hold, and at exit.

Strategic sourcing isn't procurement optimization. It's a lifecycle margin lever — and the firms that treat it that way capture value the others leave on the table.

A lifecycle margin lever for PE

01 — Pre-Acquisition
Underwrite the real margin
During diligence, a focused sourcing diagnostic surfaces embedded cost inflation, unbenchmarked supplier pricing, and fragmented strategies across plants and business units. That visibility strengthens underwriting confidence — and creates an execution-ready Value Capture Plan before close.
02 — During Ownership
Convert structure into EBITDA
Incremental cost reductions won't move valuation. Structural improvements will. A disciplined engagement delivers double-digit category reductions, improves margin predictability, reduces supplier concentration, and strengthens working capital terms.
03 — At Exit
Valuation leverage
Fully executed contracts get full valuation credit. Everything else gets discounted, deferred, or left on the table for the next buyer. Sequencing matters: a program initiated 12 months before exit converts what would otherwise be buyer upside into seller-captured value.

Pre-acquisition: underwriting the real margin

Reported savings rarely tell the full story. During diligence, a focused sourcing diagnostic can quickly surface:

In many cases, this reveals material, actionable cost opportunities beneath reported margins. That visibility strengthens underwriting confidence — and creates a clear, execution-ready Value Capture Plan before close.

During ownership: from structure to EBITDA

Once under ownership, speed and credibility matter. Incremental cost reductions won't move valuation. Structural improvements will.

A disciplined sourcing engagement can:

A platform engagement, in practice

In a recent engagement with a middle-market private equity firm managing a multi-company portfolio, the issue wasn't effort — it was fragmentation. Portfolio companies were sourcing independently, with no consolidated view of spend and no leverage across the platform.

We conducted a portfolio-wide spend diagnostic, creating a unified view of purchasing behavior and identifying priority sourcing opportunities. By going to market as a single enterprise, the portfolio unlocked scale advantages that didn't exist at the individual company level.

The diagnostic identified $220M of total addressable spend across the platform — designed to run through multiple sourcing waves. Each wave bids a Market Basket — typically 70–80% of the addressable spend in that wave — and that's where savings are measured. The first wave alone covered $45M of MB — and that's what the numbers below reflect.

Portfolio Engagement
$1.5B in spend → ~$30M in portfolio value
Initial wave: $45M Market Basket (of $220M total addressable identified).
$1.5B
Total Spend Diagnosed
16,000+
Suppliers Mapped
$6.5M+
Annual Savings (~14%)
~$30M
Portfolio Value Increase

Just as importantly, the program established a repeatable sourcing model, with transferable supplier agreements and embedded capabilities across the portfolio. This is the difference between incremental savings and structural margin expansion.

Curious what your portfolio's number looks like?

A 30-minute diagnostic surfaces the structural opportunity before any engagement.

Book a Diagnostic

At the exit: turning cost structure into valuation leverage

This is where sourcing either pays its biggest dividend — or leaves significant value on the table.

Most firms understand that documented cost improvements can support pro forma EBITDA adjustments during a sales process. What's less understood is that not all savings are created equal in the eyes of a buyer. Where your sourcing program sits at the moment bankers go to market determines how much of that value actually transfers into valuation.

Sequencing & Valuation
When you start sourcing determines how much of the value the buyer credits
12 mo — full credit
6–12 mo — partial
<6 mo — none
Exit −12 mo Exit −6 mo Exit −3 mo Exit
12 months outContracts execute before bankers engage. Full pro forma credit.
6–12 months outPartial execution. Buyer discounts the savings or treats them as upside.
Inside 6 monthsValue isn't created in time. The opportunity transfers to the next buyer.

Fully executed contracts get full credit. Everything else gets discounted, deferred, or left on the table for the next buyer.

Sequencing matters. A program initiated 12 months before exit — structured to reach full or near-full contract execution before the process begins — converts what would otherwise be buyer upside into seller-captured value. That's not a procurement decision. It's a transaction decision.

When cost improvements are validated, contractually intact, and well-documented, they don't just improve earnings — they increase buyer confidence in the durability of those earnings. And in a PE exit, confidence in future earnings is what drives multiples.

Run Your Number
What does sourcing translate into at exit?
Move the sliders to match your platform's addressable spend, the structural opportunity, and the multiple your sector commands. The output updates live.
Addressable Annual Spend $220M
$50M$1B$2B
Structural Cost Opportunity 8%
3%9%15%
Exit EBITDA Multiple 4.5×
4×9×15×
Annual EBITDA Uplift
$17.6M
Run-rate impact when fully executed
Valuation Lift at Exit
$79.2M
At 4.5× multiple, if sourcing is contractually intact at sale
Lost If Buyer Discounts to Upside
$39.6M
Half-credit scenario if program isn't fully executed at exit
Sequencing Impact
Two sponsors. Same opportunity. Different valuations.
Both identify the same $17.6M annual EBITDA uplift on the same platform (8% structural opportunity on $220M addressable spend — the lower end of the 8–15% range). Sponsor A runs a 12-month program: months 1–6 are diagnostic, RFP development, and supplier qualification (no value yet); the back half is where contracts execute and savings hockey-stick into the P&L. Sponsor B starts inside the last 6 months — diagnostic phase only, no value accrued before exit.
Illustrative. Assumes ~$220M addressable spend, 8% structural opportunity (low end of 8–15% range), 4.5× exit multiple, and a back-loaded value-capture curve that mirrors a real 12-month sourcing program.

Why sourcing initiatives stall — and how Tenet differs

Sourcing initiatives often stall because they rely on internal teams already stretched thin — or external advisors focused on activity rather than execution and P&L impact.

We focus on structural margin change. Our approach is data-driven, market-tested, and built to withstand diligence scrutiny. The objective is simple: measurable EBITDA expansion that translates into valuation — at entry, during hold, and at exit.

If you're underwriting a platform, building a 100-day plan, or preparing for exit, a disciplined sourcing assessment can quantify opportunity quickly — and defensibly.

When margin is predictable, valuation follows.
Scott Brewer, Founding Partner at Tenet Consulting
About the Author
Scott Brewer, Founding Partner
30-plus year veteran of strategic sourcing and supply chain transformation, specializing in direct materials and structural cost reduction for manufacturers and PE-backed platforms. Reach out at scott.brewer@tenetconsulting.com or visit tenetconsulting.com.