Procurement is private equity's most underused value-creation lever, and AI is the multiplier

The shift

The center of gravity has moved from the deal to the business

For a decade, cheap debt and rising multiples did much of the work in private equity. That tailwind is gone. With the cost of capital still elevated and entry valuations high, returns now have to be built inside the business rather than engineered around it.

The data makes the shift hard to miss. In Alvarez & Marsal's analysis of European exits, margin improvement accounted for 51% of portfolio-company EBITDA growth in 2025, up from roughly 21% before 2023. Operating performance, not leverage or multiple expansion, is now the larger half of the value-creation story. And there is more time in which it has to show up: the average holding period at exit now hovers around seven years.

That reframes the operating partner's central question. It is no longer whether to pull operational levers, but which ones return EBITDA fastest, and survive diligence at exit.

The lever

No operational lever has more reach than procurement

External spend is the largest controllable line most companies have. By McKinsey's estimate, procurement represents 50% to 80% of a company's total cost base. That scale is what gives it its leverage: a dollar taken out of spend is not like a dollar of new revenue, which arrives with its own cost to serve. It drops almost in full to EBITDA, and is then multiplied by the exit multiple.

The gap

The value is won in execution, not in the diligence deck

If the prize is this clear, why is so much of it left on the table? Because the savings modeled at close are not the savings that reach the P&L. 65% of value-creation programs delivered less than half of the value they targeted, by Alvarez & Marsal's count, and 58% of leaders concede that procurement value creation is difficult and does not reliably yield the expected result.

The gap is execution. In a platform built through acquisition, each business arrives with its own suppliers, its own pricing tiers, and its own buying habits accumulated over years. Consolidating that takes the unglamorous work no model does on its own: normalizing supplier records, building one clean spend taxonomy across sites, and changing purchasing behavior that will not move until someone deliberately moves it. Where programs fail, it is rarely the thesis. It is the absence of a named owner for the bridge, too many levers at once, and no cadence to keep the plan alive past the first quarter.

The multiplier

AI raises the ceiling, but the runway is short

Artificial intelligence is becoming the differentiator between procurement teams, with the potential for 25% to 40% efficiency gains and materially higher savings from data the team could never previously process. The firms Bain identifies as winning in this cycle share a pattern: they invest in AI and move from diligence to execution on day one.

The constraint is time. AI initiatives typically take 6 to 12 months to show first results and 18 to 36 months to reach full operational impact. Inside a hold that is now measured against a tightening exit window, a program that starts late never compounds. Sequencing, not ambition, is what decides whether the value lands before exit preparation begins. And every bit of it rests on a precondition that is easy to underestimate: data that is clean and connected enough to act on.

What it means

For operating partners, the playbook changes

Treating procurement as a strategic engine rather than a back-office function changes the order of operations. It moves procurement diligence earlier, so the levers are sized and validated before close. It names an owner for the savings bridge, with a cadence to defend the plan past the first quarter. It funds the data foundation before the tools, because AI layered on fragmented spend produces confident, wrong answers. And it sequences every initiative against the hold clock, so the impact compounds while there is still runway.

Procurement is no longer where cost gets trimmed after the fact. Done early and owned well, it is where EBITDA, resilience, and a cleaner exit story get built from the first hundred days.