Overview of success-fee based operating cost savings from Expense Reduction Analysts

1. Creating value through expense
reduction for financial sponsors,
portfolio companies and
corporations
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2. Private equity firms and management have
significant flexibility in working with ERA
 Introduce ERA to portfolio companies as a preferred advisor
 Suggest management consider using ERA to achieve operating cost savings
 Portfolio companies ultimately make final decision and chooses cost
categories for review by ERA
 Work directly with private equity firms if appropriate
 Execute post-closing expense reduction projects for portfolio companies
 Ensure operating expenses are optimized
 Maximize cash flow available for pay down of debt
 Identify operating cost savings during post-LOI due diligence process
 Help refine cost synergies and level of attractiveness of business
 Provide additional clarity around valuation
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3. Key considerations
Potential concerns Mitigating factors
Fees / Compensation  Flexible compensation model
 Success-based or fixed fee
 Combination or tiered pricing
 Payments over time or upfront
 Incentives highly aligned
Project timing  Benchmark costs in < 14 days for pre-closing
assignments
 Full procurement process in 30 to 60 days using
proprietary web-based software / tools
Data requirements  Data collection in hours
 Data generally provided electronically
 General ledger and accounts payable
 Data from supplier
 Invoices and contracts
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4. ERA’s illustrative fees generate attractive
returns – low opex example
Portfolio company cash flow
Month (selected shown) 0 6 12 18 24 25
ERA deposit ($30,000) - - - - -
Portfolio company savings - $7,500 $7,500 $7,500 $7,500 $12,500
Exit value at 7.0x - - - - - $1,050,000
Total cash flow ($30,000) $7,500 $7,500 $7,500 $7,500 $1,062,500
Discount factor 1.00 0.88 0.77 0.67 0.59 0.58
Present value ($30,000) $6,578 $5,769 $5,060 $4,438 $615,102
Net present value & IRR sensitivity
Exit Multiple
6.0x 7.0x 8.0x
20% $743,815 $846,411 $949,007
Return on
30% $636,794 $723,632 $810,470
Equity
40% $551,872 $626,286 $700,701
IRR 1706% 1749% 1789%
* For key assumptions, including illustrative fees, contact Andre Stokes
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5. ERA’s illustrative fees generate attractive
returns – high opex example
Portfolio company cash flow
Month (selected shown) 0 3 6 9 12 13
ERA deposit ($30,000) - - - - -
Portfolio company savings - $43,500 $43,500 $43,500 $43,500 $50,000
Exit value at 7.0x - - - - - $4,200,000
Total cash flow ($30,000) $43,500 $43,500 $43,500 $43,500 $4,250,000
Discount factor 1.00 0.94 0.88 0.82 0.77 0.75
Present value ($30,000) $40,738 $38,152 $35,730 $33,462 $3,198,529
Net present value & IRR sensitivity
Exit Multiple
6.0x 7.0x 8.0x
20% $3,439,366 $3,931,826 $4,424,287
Return on
30% $3,171,110 $3,622,667 $4,074,224
Equity
40% $2,942,125 $3,358,846 $3,775,568
IRR 6257400% 6263261% 6269117%
* For key assumptions, including illustrative fees, contact Andre Stokes
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6. TSG Consumer Partners case study
 Sports supplements  Manufacturers of a full line of
manufacturer and makers of beauty products sold in 40
Muscle Milk countries
 Cut merchant card fees 42%  Reduced LTL freight expenses
 Office supplies decreased 29% 34%
 Employment services (temp  Small package freight
labor) down 13% reduced 30%
 Total annual savings of
 Telecom reduced 19%
$375,000 per year
 Total savings of $260,500
per year
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7. Expense Reduction Analysts overview
 Specialists in reducing non-headcount operating costs
 Founded in 1992 in the United Kingdom
 700 consultants in 30 countries – 250 consultants in the US
 Consultants average 15-20 years experience in their respective
industries
 Proprietary benchmark data from more than 14,000 projects
 Success-based compensation model – no savings no fee
 Implement, then monitor and audit for 24 months to ensure savings
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8. Consultants with 15-20 years experience
across a variety of industries
Accounting / Consulting Banking / Insurance Consumer / Retail
Industrials Services Technology / Telecom
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9. The ERA process yields predictable results:
Savings in 91% of projects
67% of projects remain with the incumbent supplier
Realize 101% of predicted savings
Average cost savings of 20%
* Based on over 14,000 projects completed or under review
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10. Why ERA is consistently able to find average
savings of 20%
 Organizations concerned about redirecting critical resources away
from essential activities
 Appropriately focused on core business
 Typical ERA process requires only 4–6 hours of client time
 Organizations fear they lack the most relevant market
benchmarking data and national purchasing power
 Pricing comparisons by industry, company size and location (local,
regional and national)
 ERA capable of drilling down to pricing at SKU level
 Negotiate volume discounts clients cannot achieve alone
 Organizations uncomfortable with their false confidence regarding
the competitiveness of their supplier agreements
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11. The ERA process
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12. Expense category expertise
 Accounting Services  Medical Supplies
 Air & Ocean Freight  Merchant Card Processing
 Bank Service Fees  Office Supplies
 Chemicals  Packaging
 Cleaning Supplies  Payroll Processing / HR Admin
 Document Storage  Print Services
 Factory Consumables  Shipping Consumables
 Fleet Management  Small Package Freight
 Food Service  Tax Evaluation
 Insurance (P&C, Benefits, W.C.)  Telecommunications
 Information Technology  Temporary Personnel
 Janitorial Contracts  Travel & Entertainment
 Laboratory Supplies  Uniforms Rental & Cleaning
 Leased Equipment  Utilities (Gas, Electric, etc.)
 LTL / FTL Freight  Waste Management
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13. Case studies – office supplies
Client — DC Law firm
Spend — $330,000
Annual Savings — 25.5%
Hidden Savings — $82,500 a year
____________________________
Client — Regional hospital network
Spend — $370,000
Three-year contract with the Annual Savings — 33% average
existing supplier beat national
GPO pricing over 3-year contract
Hidden Savings — $400,000
over 3-year contract
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14. Case studies – payroll processing / HR admin
Client — Nasdaq-listed
Global Technology Company
1,300 employees
Spend — $150,000
Annual Savings — 45%
Hidden Savings — $67,500 a year
____________________________
Many companies rely on Client — Engineering firm
big industry players, but 200 employees
end up paying for features
they do not use Spend — $38,000
Annual Savings — 28%
Hidden Savings — $10,500
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15. Case studies – telecommunications
Client — Advertising Agency
Annual Spend - $480,000
Annual Savings — 25%
Client return on time invested =
$11,500 an hour
____________________________
Client — Northern Kentucky Chamber
―ERA Consultants are amazing
in uncovering hidden or Annual Savings — 43% year one;
unnecessary costs.‖ 41% every year thereafter
~ Steve Stevens, Client return on time invested =
President
$4,800 an hour
Northern Kentucky
Chamber of Commerce
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16. Case studies – waste management
Client — Sun Microstamping
Technologies
Spend — $38,000
Annual Savings — 37%
Hidden Savings — $14,000 a year
____________________________
Client — National restaurant chain
Clients are often told they
are getting the best prices
Spend — $842,000
possible. ERA industry Annual Savings — 19%
knowledge and benchmark
data counter these Hidden Savings — $162,000
assertions.
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17. Case studies – merchant card processing
Client — NutriSystem
Spend — $370,000
Annual Savings — 59%
Hidden Savings — $220,000 a year
13% ____________________________
Client — Goodwill of the Heartland
―It didn’t take me long to Spend — $84,000
appreciate ERA’s
professionalism and Annual Savings — 25%
innovation.‖
Hidden Savings — $21,000 a year
~ Tammie Erb, CFO
Goodwill of the Heartland
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18. Andre Stokes, Director
 Andre Stokes Andre has over 20 years of business strategy, corporate development, and
finance experience with management consulting, investment banking and government
organizations.
 He has strong management and leadership skills that include managing project teams and
advisors, negotiating favorable terms with counterparties, and clearly and objectively
presenting opportunities to senior executives.
 Andre’s broad expertise includes business development, contract negotiations, strategic
planning, cost management, operational assessments, due diligence, private equity, M&A and
financings
 As an ERA consultant, Andre works with clients across the U.S. to help improve cash flow
from projects ranging from bank fees, food service, freight, insurance, merchant card fees,
office supplies, payroll processing, waste management and others to more specialized areas
such as R&D tax credits, accounting and back office outsourcing and receivables financing.
Expense Reduction Analysts
11400 West Olympic Blvd  Prior to ERA, Andre served as co-head of the merchant card processing practice at First
Suite 200 Annapolis Consulting where he managed numerous projects. Among other projects, he
Los Angeles, CA 90064
performed a financial and operational assessment of a top 10 credit card issuer’s data
T 877.372.9201 processing and back office servicing environment. He evaluated and negotiated outsourcing
F 310.684.5775
M 646.270.0869 contracts that resulted in savings of $10 million per year.
 At Credit Suisse, Andre managed many financing and M&A projects, including an alternative
astokes@expensereduction.com
www.expensereduction.com telecom provider’s acquisition of a $4 billion long-distance provider and subsequent $430
million high yield offering.
 Andre holds a BSME from the U.S. Naval Academy and an MBA from Harvard Business
School.
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