In November I wrote about Blackstone's bid for EOP. It closed today at $39B. My advice still stands, they should take a hard look at their SG&A. I also recall something I had forgotten about back in November. When EOP was a client, a Vice President of Procurement had the last name "Borg" (I did a cursory check on the web-site and can't see if he's still there). It's a funny last name. For you Star Trek fans, ok, it's a little funny. For us purchasing types Borg means "B"uying "org"anization. Juvenile yes, but it still brings a smile to my face.
Cheers,
David Rotor
Showing posts with label Blackstone. Show all posts
Showing posts with label Blackstone. Show all posts
Wednesday, February 7, 2007
Monday, November 20, 2006
Equity Office Properties acquired by Blackstone. A small procurement investment would make sense.
Today Blackstone announced they were acquiring EOP in a record setting leveraged buy-out worth $36B ($20B to shareholders and $16B in acquired debt). This story caught my eye as a few years back an e-marketplace I worked for served EOP and we also worked for a few months to convince their new VP Procurement to hire us for procurement services work. On the other side of the transaction a former client is now a Managing Director at Blackstone. I think this transaction can help illustrate my statement that few investments can rival procurement for generating returns for companies.
The sources and analysis appear below.
EOP has approximately $850M in sourceable spend, that is the cost purchasing of goods and services that typically can be negotiated. Based on my recall of discussions at EOP and similar REITs I estimate that approximately 50% of the spend could be addressed by strategic sourcing - $425M. Strategic sourcing in this industry typically yields savings, net of $4M in sourcing costs, of 8% or $34M in annual savings.
So apart from generating an incremental $34M to the bottom line, how else can we describe the impact an incremental investment of $4M in Blackstone's $36B acquisition of EOP achieve?
Current
Source: EOP Annual Report 2005
The sources and analysis appear below.
EOP has approximately $850M in sourceable spend, that is the cost purchasing of goods and services that typically can be negotiated. Based on my recall of discussions at EOP and similar REITs I estimate that approximately 50% of the spend could be addressed by strategic sourcing - $425M. Strategic sourcing in this industry typically yields savings, net of $4M in sourcing costs, of 8% or $34M in annual savings.
So apart from generating an incremental $34M to the bottom line, how else can we describe the impact an incremental investment of $4M in Blackstone's $36B acquisition of EOP achieve?
Current
- Earnings per common share of Operating Income: $2.27
- Earning per comon share of Net Income available to common shareholders: $0.02
- Earnings per common share of Operating Income: $2.35 (an incremental $0.07 per share)
- Earning per common share of Net Income available to common shareholders: $0.08 (an icremental $0.06 per share)
Source: EOP Annual Report 2005
- Revenue: $3.0B
- Operating Expenses: $2.1B
- Operating Income: $0.9B
- Net Income available to common shareholders: $8.1M
- Weighted Average Common Shares Outstanding: 403,147,751
- Earnings per common share of Operating Income: $2.27
- Earning per comon share of Net Income available to common shareholders: $0.02
- Sourceable Spend: $849M (Repairs & Maintenance $341M, Property operating $442M, Corporate and general administrative $67M)
- Addressable spend: $425M
- Cost estimate to source $425M in addressable spend: $4M
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