Bear Stearns saves with synergy

Bear Stearns Merchant Banking, which recently closed its third fund on $2.7bn, is saving its portfolio companies millions by negotiating common vendor contracts.

New York-based Bear Stearns Merchant Banking (BSMB), which closed its third fund on $2.7 billion (€2 billion) earlier this month, has also been successful at saving millions of dollars by negotiating common vendor contracts across its portfolio.

Private equity firms worldwide have looked into improving the bottom lines at their portfolio companies by simple operational improvements. BSMB has done this at the nuts-and-bolts level, saving money by renegotiating common contracts for its companies in the fields of temporary labor, telecommunications, insurance, transportation, overnight shipping, office supplies, travel and other areas.

“We sat down and thought: what else can we do to save money?” said BSMB’s senior managing director and chief operating officer Gwyneth Ketterer. “Here we have all these companies that we can leverage one to another, and we have the backdrop of the brand of Bear Stearns—which has its own heft—and 12,000 employees and big spending in some real big areas. What could we do to bring this all together?”

BSMB teamed with Chicago consultancy Alaris Consulting, which had done successful one-off projects renegotiating some master contracts for smaller private equity firms. Then they pored through the books of their portfolio companies, looking for common spending areas.

“Now tell me what happens when you sit down with a vendor and you can put $52 million to spend on the table, versus BSMB’s portfolio company New York & Company’s $1 million, or the next guy’s $1 million,” said Ketterer. “We saved 25 to 30 percent off the bat for New York & Company in telecommunications.”

The firm also managed to save nearly $1 million (€775,000) in plastic-bag costs for its portfolio company Reddy Ice. There’s no denying that BSMB’s research has paid off.

[The full Gwyneth Ketterer interview is in the September 2006 issue of our sister publication Private Equity Manager.]