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Management: Tapping into Cash Flow

By Mary Nestor

Louisville-based Alliance Cost Containment has opened dozens of offices around the nation and signed up hundreds of clients by bringing Fortune 100-style sourcing efficiency to mid-size companies that might not have a purchasing department.

Money saved buying general supplies and services builds bottom line revenue for clients.

The privately held six-year-old company is busy also adding white-collar jobs in the city. Private equity firms have noticed and believe CEO Miles Lee has a formula for sustained growth and long-term success. Dale Boden’s Yearling Group II has invested in Alliance.

“We aren’t going to create the process, or the software, or the engine – that’s already built,” Lee said. “Our capital is going towards an ambitious, accelerated growth plan.”

In addition to its projected growth, Boden cites ACC’s cost-savings process itself as critical in the decision to commit funds. Yearling does not reveal the amount of its investment nor does Alliance make its revenue numbers public.
“What we like most about the company,” Boden said, “is that this is an area within the economy that has a very acute need.”
Lee explains the strategy.

“We focus on indirect expenses,” he said, defining these as non-strategic recurring operating expenses. “Think about a Tier 2 automotive supplier,” he said, using an example that speaks to a significant regional client base. “They are going to buy everything from steel down to paper clips.

“They’re probably doing a pretty good job on the steel because that’s a strategic purchase,” Lee said.

But expenses like telecom, printing, office products, business equipment and credit card processors can collectively consume 10 to 12 percent of a company’s revenue. As sales are pinched in a sluggish economy, ACC can aggregate a client’s buying power by negotiating deals with vendors.

This helps companies open up cash flow, which then can be redeployed into marketing, capital expenditure, research and development, and other growth strategies.

Unlike their specialty purchasing competitors, ACC does not charge clients a fee to be part of a group purchasing organization. Rather, its sales force reviews a client’s financials and competitively bids specific expenses among a core group of respected national suppliers. The ACC model measures savings achieved, and clients pay a percentage of those savings for ACC’s services.

In addition to consumables, ACC recently inked an agreement with an international insurance broker, The Lion Partnership. Employee healthcare is not on the table, but with guidance from licensed agents just about every other type of business insurance will be analyzed for potential savings.

The newly hired COO at Alliance, Terry McElfresh, explains the ACC business model.
“We’re not consultants. We’re a company that comes in and reduces our client’s expenses,” McElfresh said. “We’re only paid on future savings.”

Client Ron Turnier, owner of Creation Gardens, a direct supplier of gourmet food to regional restaurants and groceries, likes the approach.

“It’s a risk-free endeavor for us to be saving money,” Turnier said. “Once you engage them, they’re on the job and they’re not pestering you. They’re just always looking for savings because that’s how they get paid.”

Lynn Rice is president of Super Quick Inc. convenience stores, which has 22 locations in three states and has been an ACC client for several years.
“The savings for us are in the $100,000 range,” Rice said.

‘Nothing rocket-science about it’
Lee has a background in purchasing and cost management. He founded a regional buying group in 1997, built Unistar into a multimillion-dollar organization and sold it before moving on to head up ACC. Since 2004, ACC has
systematically opened 35 offices in two countries, staffed by a sales force comprised of principals with a significant stake in the outcome.

One of them, Rudy Moeller, divides his time between Louisville and Lexington, but he has also followed the trail as far as Michigan as he networks through a word-of-mouth growth strategy that has defined the company to date.

“I love the simplicity of the business model,” Moeller said. “There is nothing ‘rocket science’ about it. I’m doing what any company would do if they had enough people and enough time to do it.”

As recently as 15 months ago, Alliance Cost Containment occupied about 500 s.f. of space on the ground floor of its office building at 222 S. Fourth St. in Louisville. By the end of 2011, it intends to add about 15 people, utilize 9,000 s.f. of its fourth-floor office space, and expand its client base across the United States and into Canada.

Mid-market companies with sales between $10 million and $500 million are viewed as the sweet spot for projected growth. ACC clients currently range from non-profits to a country club. They include retailers, manufacturers, auto dealers, academia, city governments, law firms and grocery chains. More often than not, ACC clients request nondisclosure agreements, but Lee is able to share a list that includes such notables as Frost Brown Todd LLC and Trinity High School in Louisville. Across the country, the ACC sales team has steadily increased to more than 1,000 clients in two countries.

Filling out the team
As CEO, Lee has been something of a one-man management team until recently. One day earlier this year, despite the fact that newly purchased office furniture had yet to arrive, his telecom system was an iPhone and the office art collection was still leaning in huge pallets against bare walls, Lee maintained his calm in the eye of the storm. He has raised the capital necessary and is busy identifying the key players in preparation for this explosive growth.

McElfresh hails most recently from the National Thoroughbred Racing Association and brings a particular skill set. Having developed and managed national accounts for a Fortune 500 company and then directing strategic alliances from the helm of the NTRA, he is qualified to help the company grow exponentially.

“When I scripted the job … I didn’t think twice about posting an ad. I just called Terry’s number,” Lee said. “He’s the perfect fit for what we’re doing because he can set up a deal from our side, but he can also manage a relationship from the supplier side. He has done both.”

On their “to-do” list for the early part of 2011 is to complete the management team. They’ve already hired a vice president of marketing, a vice president of business development, an operations manager and an IT manager. They are also interviewing for a vice president of supplier management.

By 2012, Lee expects ACC will again double the size of its offices to accommodate administrative personnel, cost analysts, central support and a supplier management team.

Investor Kent Oyler, CEO of OPM Entrepreneurial Services, is another person Lee enlisted early in the growth process. The two have been friends for 20 years and joke that they trust each other well enough to have purchased used cars from one another. (Asked who got the better deal, each shrugs, hesitates and points to the other.)

Oyler was a key member of former Mayor Jerry Abramson’s “Dollar a Year” team to increase entrepreneurial activity in the city, and he continues to work with new Mayor Greg Fischer’s administration in this critical role. He is investing with ACC, helping structure subsequent rounds of investment capital, and is pleased that the success will also expand the employment base in the city.

In addition to creating jobs in Louisville, the first round of funding calls for penetrating major metropolitan areas in the United States and some in Canada. Regionally, the sights are set on Nashville, St. Louis, Cleveland, Kansas City and more growth in the Chicago area markets.

Perhaps Oyler’s commitment as an investor sums up the deal. He cites slow and steady growth and skilled management as the primary motivators behind his enthusiasm and his willingness to invest.

“This company has a long base; it’s got history. That takes time,” Oyler said. “Now it’s structured so it’s well-positioned to explode, and something like that gets real exciting to folks like me
in investments.”