How to impress the Board – procurement drives company valuation

Following on from our post on company valuation, P/E ratios and other delights, here's a true story about my own financial education.

I was the European Procurement Director for the Dun & Bradstreet Corporation from 1990-95. At that time, D&B was in the midst of an acquisition spree. We had just bought Nielsen Market Research, software firms like MSA and McCormack and Dodge, and owned Moody’s Investor Services,  Thomson Directories and various other businesses. In  1993, D&B acquired a majority stake in the Gartner Group, although Gartner had its own NASDAQ listing .

The Gartner COO, with responsibility for procurement, was an impressive lady called Regina Paolillo. She was an accountant by training but also very operationally and commercially savvy.  We worked well together, and Gartner started using some of the Corporate deals that my boss (the global CPO) and I had negotiated.

A year or so later, I was at a large internal conference, with senior people up to Group CFO level. Paolillo was speaking, and all she really needed was one slide. It said something like this.

Gartner third party spend $55 million per annum
Benefit from transferring spend to D&B agreements $1.2 million p.a.
Gartner stock market P/E ratio 35
Increase in shareholder value through procurement 35 x $1.2 = $42 million

 

Wow! You can imagine how well that went down with the CFO and other top executives. I had never seen a procurement person use that analysis before, and just thought it was brilliant. And it’s something anyone working in a listed firm can replicate for their own business.

And as a footnote, Paolillo went on to be CFO of Gartner, then CFO and CEO of other various large US firms. OK, she had the advantage of having that finance qualification, but her clear understanding of what mattered to the Board has, I’m sure, helped her well-deserved climb up the corporate ladder!

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