Complexities of compliance can be

managed
The health care industry is set in a complex and constantly changing regulatory landscape. Designing
compliance strategies is equally complex. Grant Thornton professionals apply long-time experience to
create industry- and business-specific plans for managing required functions and maintaining
compliance in all areas.

HITRUST approval for CSF security assessments

As a CSF Assessor, we offer authorized services to protect health care information.
Learn about this security assistance.The services of our professionals range
from advisory to audit to tax to health care-specific including ACA-related tax issues to
provide insight and context for reasonable strategic decisions.

Our clients have been asking about

Group tax exemption
This administrative shortcut from the IRS can streamline your processes by bundling affiliated
entities into a group for just one application for tax-exempt status.
Per Rev. Proc. 80-27, the main points are:

The central organization and its subordinates must be tax-exempt.

Subordinates must be affiliated with the central organization, subject to its general supervision
or control.

None of the subordinates can be a private foundation or foreign organization.

Should you seek this group filing status for your tax-exempt health system? Our professionals can
guide you in understanding benefits and drawbacks. Contact Health Care National Managing
Partner Anne McGeorge or Tax Services Principal Frank Giardini.
- See more at: https://www.grantthornton.com/industries/health-care/compliance.aspx#sthash.W87X4hzB.dpuf

Need help making your data intelligent?

Your data can be a truly useful tool.

Health Care Advisory Services Senior Manager Stephen Thome leads in unifying data analytics
for clients, helping them to become data-driven.
Theres no shortage of rich data issued from investments in EHR and EMR systems. But true use of
valuable data has yet to be made across the industry. Data analysis produces revelations and the
route to performance improvements within your organization.

Learn about the drive to reliance on analytics, and find out how to understand and access this new
currency. We have analytical solutions that work with the systems you already have in place. We call
our approach RxIQ.

RxIQ puts your data to work

Our RxIQ solution creates integration throughout existing systems. It analyzes system data against
external data sources to focus on cost reduction and increased quality. Find out more about
RxIQs three innovative tools: Population health, Costing informatics and Performance analytics.

We can help you:

HITRUST approval for CSF security assessments

As a CSF Assessor, we offer authorized services to protect health care information.
Learn about this security assistance.Shield your organization from cyberattacks
Escalating risks have driven cybersecurity up the corporate ladder to the desk of the CFO.
Recognize and reduce risk for your organization as it moves through the cloud
Understanding technology and managing third-party risks will be increasingly an internal audit

Business planning determines

challenge, opportunity decisions
responsibility.

Effective due diligence focuses on bringing together industry sector knowledge and special resources
to provide a deep understanding of the past, present and future. We take you through the entire
process, from a buy-side search to merger integration services to sell-side assistance in a variety of
business situations:

...When integrating a physician practice

Before health systems start down the road toward physician integration and advanced practice
professionals, they benefit from thinking through the wider implications of policies, processes,

technologies and economics. Based on our years of experience working with physician relationships,
we help you balance the quality of care and financial dimensions of change.
To mitigate tax exposure and engage physicians to fulfill your enterprise strategy, our tax
professionals recommend the best structure for the integration.
Mutual advantage through alignment of compensation and benefits is key to successful
integration. We help establish competitive pay levels for base salaries, annual incentive plans and
long-term equity plans, and guide you in tax-effective methods of deferred compensation, and health
and welfare plans.

...When consolidation and partnerships are considered

Organizations develop thoughtful M&A plans including quality, talent, operational and financial
due diligence and innovative affiliations such as sharing services to gain the benefits of
partnerships and avoid significant risk in this new and competitive environment.
Engage our help in restructuring operations and capital position; we can provide an independent
and objective assessment of your organization, and recommend the best options for moving forward.
To avoid valuation risks, we work with you to develop a well-structured foundation and accurate
reporting for compliance analyzing business practices, fair market value and physician
compensation, tangible and intangible assets, and physician alignment.
Whether the goal is to turn around and sell operations or to consider bankruptcy, our Corporate
Advisory and Restructuring Services team facilitates an orderly transition.
- See more at: https://www.grantthornton.com/industries/health-care/transaction-activity.aspx#sthash.BH4YjyZF.dpuf

- See more at: https://www.grantthornton.com/industries/health-care/health-IT.aspx#sthash.nPv8JJKf.dpuf

Position your financial operations for whatever tomorrow may bring.

Our financial management consultants work with financial executives who want to add value, save
time and save money. We help keep your finance function moving forward to evolve from traditional
transaction and reporting to more efficient, analytical and data-driven processes so it can provide
timelier insights to decision-makers to drive strategy and meet business objectives. Grant Thornton
LLP has custom-tailored solutions you need to tackle your most critical business issues:

Finance transformation
Business events drive an urgent need for finance transformation:

Post-merger integration means aligning the capabilities of two organizations and

defining a new operational model and organizational plan
Core systems implementation is a catalyst for re-engineering processes and defining
new business requirements for all finance-related activities
Material business changes mean the finance organization must assess the impact and
build potential business models and roadmaps to address the new reality
Audit remediation or restatements create the need to develop and implement
corrective action plans

Cost & performance management

To operate efficiently and elevate strategic value to management, the finance organization can
provide:

Cost and profitability analyses to measure and analyze the financial impact of
activities and identify opportunities to improve performance and create value
Finance process optimization to help increase the efficiency of existing processes
through analysis of the current and desired future state
Financial planning and analysis to give CFOs better business insights and enable
better decision-making
Financial benchmarking to utilize external data to identify opportunities for financial
improvement

Financial operations
To improve financial operations, CFOs can provide:

Reporting and business intelligence to provide the right information at the right time
Data analysis and reconciliation to validate completeness and accuracy of
underlying data
Policies and procedures that facilitate improved or enhanced performance
Specialized managed services and specialty accounting assistance to allow
the organization to focus on value-add activities

Shared services
To create efficiencies, many finance organizations are looking to update and standardize their
processes via shared services. As part of the business case for a shared service business model,
they are looking for expertise in:

Shared services business model and analysis of key financial metrics to evaluate a
transition to a shared service model
Managed services selection to select the right outsource provider
Centralizing finance operations for analysis, design and implementation of backoffice centralization

Controlling spend
- See more at: https://www.grantthornton.com/services/advisory/business-consulting-and-technology/financialmanagement.aspx#sthash.l3lRajdS.dpuf

Forward-thinking organizations need to continually optimize their workforce, processes and

systems to execute their strategy.

Well help you prepare for whats next.

As todays organizations grow in size and complexity, processes and operating models that were once
successful can become cumbersome and inefficient. The rapid pace of technology innovation, plus
the evolving expectations of customers, stakeholders and employees, can lead to organizational
inefficiencies, stagnating profit growth and the loss of the ROI your organization expects. The key is
setting the right strategy to get more from your limited resources people, processes and technology
in order to remain agile to meet the demands of an ever-changing marketplace.
Our management consultants bring a tailored approach to help you develop and operationalize
strategies to scale and create specific tactics that will trigger the transformation you want. With deep
industry experience and extensive knowledge of organizational functions and priorities, we help you
align your organizations people, processes and technology, across functions, to optimize
performance, all the way from strategy to execution. We can help you with:

Strategy
Our strategy consultants can help you turn your biggest bets into big wins. We draw on our deep
understanding of market trends, industry insights and competitive assessments to design customized
strategies that will launch your future and help you accelerate past the competition and into the
opportunities that reveal the richest returns.

Performance improvement
Our performance improvement team helps clients align their organizations to optimize performance by
streamlining processes, reducing waste and measuring the achievement of outcomes. We leverage
appropriate technologies and consider the impact on your people in order to help you achieve
strategic goals and reduce risk.

Human capital management

Grant Thorntons A2E (attract, accelerate, enable) approach is employer- and employee-centric. Both
are required for success. We bring very specific tools and experiences to help you become an
employer of choice and we apply them in a holistic manner to increase overall business performance.
That means you arent just getting world-class human capital consulting, youre getting our best audit,
tax and advisory perspective as part of the solution.

Supply chain management

Our supply chain consulting team works with you to redefine core supply chain issues related to
vendor management, inventory optimization and leveraging data analytics for logistics and distribution
planning.

Organizational change management

Our organizational change management consultants deliver a people-centric, organizational change

management approach that increases speed of adoption, mitigates risk and drives performance to
foster success.
- See more at: https://www.grantthornton.com/services/advisory/business-consulting-and-technology/strategy-performanceimprovement.aspx#sthash.dSLpIrzp.dpuf

Technology strategy and innovation

drive competitive advantage
Outperform your competition with the strategic use of technology, innovation and data
Technology and innovation continue to disrupt how organizations do business and engage with their
customers, employees, suppliers and stakeholders. No longer relegated to an IT department,
technology, digital and innovation strategies are critical to the overall organizational strategy. In order
to adapt to changing markets and emerging technologies, organizations are adopting new
organizational models and technology-enabled business strategies. Organizations are faced with the
imperative of optimizing current and legacy IT investments and initiating large-scale technology and
digital transformations to execute organizational strategy and compete and thrive in a rapidly evolving
market.
Bringing deep IT, digital, data strategy and project management experience and an extensive
knowledge of markets and customers, our technology strategy & management consultants can help
you leverage legacy and emerging technologies to develop new technology-enabled approaches,
models and roadmaps that support corporate decision-making, drive innovation and create a
sustainable competitive advantage in your market. Our solutions are customized to meet our clients
specific needs:

Digital services & innovation

Enterprise digitization enables organizations to improve the way they engage with employees, clients,
customers, suppliers and partners. Effective digitization also helps organizations gain competitive
insight in an actionable and structured manner. We help organizations become top market performers,
distinguishing themselves from their competitors, by identifying opportunities and executing
strategically and operationally effective actions in real time.

IT strategy & architecture

Continuously aligning IT strategy with an organizations overarching enterprise strategy is challenging
in todays swiftly evolving IT environment. We can help you build enabling architecture, a roadmap
and an IT organizational model that supports enterprise strategy in a cost-effective, risk-mitigated and
strategic manner.

Agile & project management

The ability to manage complex programs and projects and deliver timely results can be vastly

improved by leveraging Agile and other program management processes. We can help you effectively
leverage methods and processes to predictably execute and consistently deliver risk-mitigated results
and effective enterprise initiatives.

Data strategy & management

Data can and should be utilized as a strategic differentiator. In todays business world, data provides
the foundation for insightful and informed analytics that drive sound decision-making and the
operational execution of the overall enterprise strategy. We help clients develop effective data
governance, master data management and enterprise data models that have clear alignment between
the stated enterprise strategy and the underlying information, data sets, frequency and granularity to
enable a nimble, real-time execution.
- See more at: https://www.grantthornton.com/services/advisory/business-consulting-and-technology/technology-strategymanagement.aspx#sthash.wHtoH2FA.dpuf

Helping life sciences companies

successfully innovate and persevere
Innovation and perseverance are hallmarks of the life sciences industry. Rapidly evolving health care
needs coupled with development of new markets present limitless opportunities in the industry. But
even in a favorable environment, life sciences companies face challenges such as:

Funding To bring any new drug or product to market, you must evaluate needs and how
to secure funding for them throughout the development life cycle.

Regulatory requirements With many regulatory hurdles on the path to approval, it is

increasingly essential to monitor the affect of new taxes and regulations, such as the medical
device excise tax, while being mindful of consequences of noncompliance.

Continual change management Your company has to plan for rapid change,
whether in a new R&D investment, a joint venture, clinical trials or the pursuit of orphan drug
status. Managing change and ensuring progress are critical to profitability.

Threats to your business and product Drug or device counterfeiters, supply

chain failures, adverse patent or intellectual property rulings, and product liability suits present
dangers that you must understand and know how to avoid.
Whether your company concentrates on pharmaceuticals, medical devices, bioengineering or other
medical research, Grant Thorntons Life Sciences professionals are here to assist you. We enable
your growth strategy through a comprehensive range of audit, tax and advisory services. We can help
your life sciences company achieve real competitive advantage.
- See more at: https://www.grantthornton.com/industries/life-sciences.aspx#sthash.AqDAVj6I.dpuf

echnology services that keep pace with

your industry
The technology industry thrives on rapid and constant change; adaptability and focus are critical for
success. Our partner-led service teams have the agility and responsiveness to match your demanding
pace.
Nearly 1,300 technology companies depend on our technology industry specialists for innovative
thinking and technical experience. Whether youre considering an acquisition, an expansion into new

markets or a successful public offering or product launch, we have the knowledge and experience to
help:

When youre aiming for high growth. Our experience and strategic focus are the
basis of the deep knowledge we put to work for software, hardware, digital media, technology
services and telecommunications companies.
When your focus is on maximizing growth by minimizing risks. Innovation
has inherent risks. In technology, they come fast and furiously. We specialize in helping you
mitigate financial, regulatory and operational risks to avoid destructive surprises.
When you need global knowledge and local-issues experience. We
understand the tax, regulatory and business issues where you are and where you want to be.
When you have milestones to hit on the road to growth. Transaction,
expansion or launch we help you protect and build value with each transformation step in
your evolution, or revolution.

- See more at: https://www.grantthornton.com/industries/technology.aspx#sthash.rkV7h8ZO.dpuf

Supporting your telecom/media

companys drive forward
Communications and media companies drive global social and economic change. They contribute
to worldwide interactivity and information sharing in multiple ways. But with constantly increasing
competition and rapidly changing customer expectations, your company must continuously take
technology forward by addressing such issues as:

High-capacity networks. Providing networking capabilities to satisfy demands for

improved Internet browsing, media streaming, text messaging and video gaming, as well as
high-quality telecommunications networks with minimal dead zones and international roaming
functionality. Customers expect a complete menu of high-speed mobile and wireless services
accessible anywhere, anytime.

Integrated/interactive capabilities. Implementing technologies and complex

networking structures to deliver comprehensive, simultaneous digital services ranging from
photo-sharing and interactive gaming to real-time webcam transmission.

Digital revenue models. Developing dynamic, competitive and customer-acceptable

revenue models, with differentiating price approaches and customer-loyalty programs that
leverage revenue-producing services and incentivize customers with no-cost, value-adding
functionality. Bundled service offerings and co-marketing arrangements should be considered,
perception of a commodity pipe avoided, and threats like digital piracy minimized.

Changing content demands. Maximizing customer opportunities for interactivity,

format integration and user-generated content and sharing.

TV delivery. Optimizing delivery of TV programming, whether by cable complete with

interactive TV and Internet capability satellite or broadband phone networks that provide
IPTV. Competition from Internet-based sources has to be overcome, and protection is
necessary to keep advertising revenues from being impacted by increased use of digital
recording devices.
Your company can achieve competitive advantage through access to our dedicated professionals
practical skills and real-world knowledge. We provide comprehensive business and financial solutions
to support your strategic success beyond today.
- See more at: https://www.grantthornton.com/industries/technology/communications-and-media.aspx#sthash.5u7Iv0bZ.dpuf

Helping your software/internet/IT

company evolve and grow

To grow in this dynamic world, your company must evolve. Meeting rapidly changing market demands
requires foresight and sharp responsive business skills in:

Innovation. Developing competitive products and services in cloud computing, social

networking, mobile applications, etc. takes identifying resources to commit for the short and
long term. Appropriately leveraging these technologies creates efficiencies and brings value in
your own operations.

Customer experience. Customer trust is everything. Your customers must have

confidence in the functionality of your products, reliability of your services and security of their
data. Your mandate is to quickly build relevant, content-rich user technology, determine the
optimal delivery channels for your products and services, and apply the proper safeguards and
controls.

Globalization. A successful go-to-market plan takes into account our economys global
nature. As you consider expansion into new international markets as a key component in your
growth strategy, be sure to incorporate a study of competition from developing markets.

Enterprise management. Managing your business for long-term profitability and

stakeholder value requires attracting and retaining a quality workforce, minimizing corporate
risk, and solidly complying with increasingly restrictive domestic and international regulations.
Our dedicated professionals apply deep business, financial and technical understanding and
capability to help your company achieve and sustain its strategic advantage.
- See more at: https://www.grantthornton.com/industries/technology/software-internet-and-IT.aspx#sthash.UeFCkyRL.dpuf

Public, diversified technology company seeks assistance with new revenue recognition
guidance
February 09, 2016
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FACTS
Company: Public technology company
Challenge: Impact of new revenue recognition guidance
Solution: New accounting policies

CHALLENGE
A public technology company had grown rapidly and expanded its service offerings through multiple
acquisitions. As a result, the company now has a complicated revenue structure, with complex
customer contracts incorporating many revenue elements. Management took a proactive approach to
identify the impact of new revenue recognition guidance on financial reporting and operations,
understanding that changes to accounting policies and IT systems would be required. They needed
an unbiased view of the impact of the guidance and assistance to support them in this analysis.

WHAT THE TEAM DID

Grant Thornton LLP was engaged to advise management on the revenue recognition implementation
project. To kick off the project, we conducted a three-day workshop for key members of the clients
account team and our core team. We discussed the companys structure and revenue streams,
allowing this discovery process to help us define the deliverables for the project. The scope evolved
as we gained a greater understanding of the company and through regular meetings with
management to make sure our team continued to move in the right direction. To onboard members of
our service team, we conducted a three-hour training session covering the company, its business and
structure, and a review of their contract types and revenue streams.
We began fieldwork with a month-long deployment at one of the clients segment headquarters. A key
to this process was working with company accounting staff at the location, which included jointly
reviewing contracts and identifying needed technical research. Based on our review and research
findings, we began drafting accounting policies for revenue streams relevant to the business units at
that location.

After completing our work at the first location, we replicated the process at other major segment
headquarter locations with a focus on different revenue streams. Overall, we addressed the impact of
the new guidance on over 60 different business units.
By the conclusion of the project, Grant Thornton had worked with the client to co-develop 21 new
accounting policies. This involved extensive research and consultations with our National Professional
Standards Group, who also leveraged knowledge gained through participation in implementation
groups, including the AICPA Revenue Recognition Working Group. Our national specialists were
readily available for consultations and reviewed the deliverables. We helped the client to identify and
understand practical applications of the new policies and consider what system changes would be
needed to support the accounting changes.

OUTCOME
Based on our work with them, the client now has the information necessary to articulate the day-one
impact of the new revenue recognition guidance. They will be able to plan and budget for the system
changes required to implement the guidance. The client will also be prepared to run parallel systems
ahead of the effective date and lay the foundation for an effective Sarbanes-Oxley Act Section 404
review by independent auditors. We were able to achieve the results they desired seamlessly and
collaboratively, with constant dialogue between our engagement team and management.
- See more at: https://www.grantthornton.com/issues/library/case-studies/technology/2016/tech-company-seeks-rev-recguidance.aspx#sthash.CmfCk5uP.dpuf

Pitfalls of software M&A: Working capital can come back to hurt sellers
February 02, 2016
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Working capital adjustments can cause material

value change for buyers and sellers, but they are often not clarified or negotiated until it is fairly late in
the deal process. In a typical deal, working capital is only mentioned in the letter of intent (LOI), and
the terms are left for the buyer and seller to negotiate prior to close. Working capital for software
companies can be especially complicated and tricky to determine and model. In this article we will
explain the basics of the working capital adjustment from the sellers perspective, and discuss some
pitfalls and takeaways.

Basics
Most software transactions are closed on a cash-free/debt-free basis. In basic terms, this means that
the seller keeps all cash (and investments) and pays off all debt (and debt-like items) at the time of
the sale. Working capital, on a simplified basis, is often thought of as current assets minus current
liabilities, excluding cash and debt-like items. In determining working capital for the purchase
agreement, there are often further adjustments for nonbusiness, related-party, tax and other items.
Based on historical working capital analysis that is typically performed during due diligence, a working
capital target (or peg) is negotiated between buyer and seller. The peg is often determined based

upon triangulation of working capital average levels and projected working capital levels at close.
Setting the peg is a negotiated outcome, and practices vary widely. At close, the difference between
the closing working capital and the peg is often a dollar-for-dollar adjustment to the total purchase
consideration. As a result, the working capital adjustment can potentially be a significant component of
the total consideration transferred between buyer and seller.
A few major considerations in establishing the working capital peg and mechanism are discussed
below. There are many other potential considerations, and we recommend that you consult with your
transaction service professional, as not all possible scenarios relevant to software companies can be
covered in a short article.
Revenue recognition: Revenue recognition in software arrangements can be quite complicated
and subject to significant professional judgment. Many sellers believe that their accounting policies
are in conformance with GAAP because they have audited accounts and/or they have never been
challenged on their accounting policies before. In reality, we often find in due diligence that there is
some divergence with GAAP even with audited financial accounts. Small differences can cause
significant adjustments in working capital. For example, some companies use a bookkeeping
convention of recognizing a full month of maintenance revenue in the month for which the contract
begins; while consistent application of this bookkeeping may not materially change reported earnings,
it may cause a significant increase in the value of deferred revenue when it is trued up at close.
Revenue recognition is one of the most common causes of large unexpected adjustment to working
capital.
Adjustments: As discussed, a peg is often utilized as part of the working capital mechanism, and
there is wide difference in practice on setting and agreeing to the peg. A common approach is to
reference the average level of working capital, after certain adjustments, in the most recent 12
months. Twelve months is a popular time frame because it is a relatively recent period, and it reflects
a full year of working capital, averaging out many elements of seasonality. A little counterintuitive, but
the seller will want a lower peg, as that is the reference amount that is subtracted from the closing
working capital balance to determine the working capital adjustment. There are typically adjustments
to the average working capital for one-time items that are uncommon, non-operational or nonrecurring
in calculating the peg. An example of a typical adjustment to working capital is to exclude related-party
balances, debt and tax accounts. The seller should make certain that significant one-time current
assets are also adjusted out of the peg, such as non-recurring prepaid assets, employee receivables
and unusually large receivable balance. Seller should also make sure to include in the adjustment any
potentially missing accruals such as PTO, commissions, and bonus. It is up to the seller to identify
adjustments that are favorable to the seller; these adjustments can decrease the working capital peg
significantly. Failure to identify the adjustments will result in an artificially high peg and result in the
seller paying the buyer for the difference.
Seasonality: Understanding the seasonality of working capital requires the buyer to complete a
fairly granular financial analysis. The seller should not be surprised or alarmed at buyer concern and
diligence surrounding working capital seasonality as this is one of the important risk areas for the
buyer. Two most common seasonality drivers are customer billings and employee bonuses. For
example, if a large percentage of customer renewals / billings occur in the fourth quarter of each year,
then any transaction that closes at the beginning of the calendar year will see less cash flow from
customers in the near term. Moreover, timing of annual bonuses can be a large cash outflow that the
buyer needs to anticipate. For the most part, the risk to the buyer of not understanding seasonality is
greater than to the seller. If the buyer does not properly understand seasonality, the buyer may find
themselves needing to inject unexpected additional working capital into the business. The seller
should be prepared to discuss seasonality and cash flow trends.

Seller takeaways
As shown, the working capital mechanism can result in considerable value transfer, and is subject to
risk for both buyer and seller. The seller has considerable exposure with respect to revenue

recognition and can mitigate this risk by making sure that its revenue recognition policies are in
accordance with GAAP. Favorable adjustments to working capital should be identified by the seller.
While not always possible, negotiating the working capital mechanism and peg during the LOI process
will reduce seller risk. Moreover, agreeing that past practices for accounting will prevail over GAAP in
calculating the closing working capital will help the seller mitigate the risk of a large adjustment.
However, to reasonably agree on a working capital mechanism and peg in the LOI will require
substantial financial information to be disclosed to the buyer so that the buyer can get comfortable
with the peg and seasonality.
Use of a transaction professional can be very helpful to the seller in navigating the working capital
process. It is often helpful to a company to obtain a fresh, third party perspective on revenue
recognition practices, seasonality analysis, commentary on the purchase agreement, and the final
working capital calculation.
Example:
A buyer and seller agreed to use GAAP for the calculation of working capital. The seller did not realize
the extent of its revenue recognition issues. On a total $20 million purchase price, there was a $1.5
million detrimental working capital adjustment. The primary cause of the large deferral is that the
seller was recognizing revenue on delivered elements but did not have vendor-specific objective
evidence (VSOE) for the undelivered elements. As a consequence, revenue that the seller had
already recognized now needed to be deferred, significantly increasing the deferred revenue balance
and decreasing closing working capital.

Energy M&A: Business uncertainty

discourages deals
March 15, 2016
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Activity has been surprisingly slow. Will it pick up soon?

The 70% drop in oil prices since 2014 has pushed many energy companies to the brink. Meanwhile,
private equity (PE) sits with $100 billion or more in dry powder ready for energy investments. Taken
together, conditions seem ripe for consolidation in the oil and gas (O&G) industry.
That hasnt happened, at least not yet: 2015 was one of the slowest years for M&A in recent memory.
Asked in the 2015 Grant Thornton LLP survey of U.S. O&G companies about their biggest M&A
challenge, respondents overwhelmingly said it was the difference in buyer and seller pricing
expectations. Thats true; but its more a symptom than an explanation of the lackluster M&A
environment, which has resulted from a confluence of the following factors.
Domestic oil production is declining only moderately
U.S. oil production was about 9.1 million barrels per day in January. Thats down somewhat from a
peak of 9.6 million in April 2015 but still well above the 8.7 million average for 2014 and millions of
barrels more than output just a few years ago.
Kyle Reid, managing director in Grant Thorntons Transaction Advisory Services practice, explains the
continued high production. Heres the situation the producers are in: You have an oil well, and I have
an oil well. You can win only if I turn mine off; I can win only if you turn yours off. So producers are not
turning their oil wells off, and supply doesnt go down at least not enough to make a real difference
in the global price. And its price that drives all valuations and what people are willing to pay for
properties.

Despite the pressure to curtail production, U.S. oil producers have maintained output by:

Improving production processes and becoming more efficient.

Negotiating lower rates from oilfield service companies.
Receiving credit relief from banks that prefer a struggling customer to a bankrupt one.
Realizing higher returns through hedges. As prices decline, theyve become less useful, but
they continue to help some companies.

The energy industry faces extraordinary uncertainty

The energy sectors greatest difficulty may be its lack of predictability. Over the past 18 months, you
may as well have used a dart board to forecast the price of oil, says Ryan Maupin, director of
Corporate Advisory & Restructuring Services at Grant Thornton. The predictions of the experts on
industry conditions havent been right not even close, adds Reid.
The uncertainty about what the oil business will be like even a few months hence has clouded
transaction negotiations. In the exploration and production (E&P) sector, buyers and sellers cant
agree on a value for the companys O&G reserves the crucial component in assessing a producers
worth because of the use of differing price curves and valuation techniques.
In the midstream and service sectors, Buyer and seller may agree on historical EBITDA [earnings
before interest, taxes, depreciation and amortization], says Reid. But going forward, they dont
necessarily agree on customer turnover and sustainability. Even if companies have been able to sign
on new customers, are those customers going to be around six months from now? And what will the
margins be like? So the PE funds are holding off.
Maupin adds, A lot of people are still waiting on the sidelines, trying to figure out where the low point
is for oil.
Difficult industry conditions constrain both financial and strategic buyers
As operating companies, potential strategic buyers have many of the same problems as potential
targets. The drop in oil prices has diminished cash flow; acquiring funds, despite some recent
infusions from the capital markets, remains difficult; and business prospects are cloudy. Even large
and stable strategic buyers wonder if they can handle an acquisition, especially one thats sizable.
In oilfield services, which have been as hard hit as the producers, if not more so, there are some wellmanaged companies that do see the opportunity to make acquisitions. But some potential sellers still
hope they can cut back their operations and survive.
Somewhat different constraints discourage financial buyers PE, hedge funds and so forth. These
acquirers have a specific investment thesis with specific metrics, which most distressed companies
cant meet.
Many small E&P producers in trouble are mostly an irrelevancy; for them, theres no M&A option
only an auction process. As for the larger, more suitable targets, they have a tough time meeting
investor requirements. Maupin comments: Many financial buyers say they are targeting distressed
businesses. But when presented with an actualdistressed business, their reaction is often, well,
not that distressed. Financial buyers want to know: Whats the turnaround story? Unfortunately, the
answer right now for many companies is that there is none.
The O&G industry may be on the cusp of an M&A revival
As the collapse in oil prices approaches two years, however, there are signs that the industry may
finally be at the point where consolidation is inevitable. At some point, the banks that have been
working with companies and not forcing them to sell their business may decide theyve seen enough.
So there could be a lot more consolidation in 2016.
Reid believes that restructuring the O&G business will require financial creativity and lots of it. The

question for CFOs is: How do I get smarter than my competitors in the new world were in? What you
should see going forward is unique financing structures as parties try to buy out the existing debt and
equity holders. You could see multiple layers of equity as buyers try to provide incentives to all parties,
including the current owners who currently have little incentive to sell. Youll see more creative deals
that close the valuation gap between buyers and sellers through terms that reward parties for a
rebound in oil prices.
Succeeding in the current M&A environment
Given the vastly changed industry conditions, have the ingredients for M&A success changed as well?
For the acquirer, you approach M&A pretty much as you always have, says Reid. You need to
understand the cost structure of the target. You need to determine whether the sellers business is
sustainable, or whether they just made temporary improvements to get through this period of low
prices. You approach due diligence as you have before, but with even more care because of the
uncertainty. The one area that now requires special focus is tax because the rules for debt
forgiveness, which will be important to many deals, can get complicated.
As for the distressed companies that are potential acquirees, Maupin sees obtaining the right advisers
as essential. Getting the right professionals on board to advise the prospective buyer in a bankruptcy
sale scenario is crucial. If theres going to be a sale, there are a variety of advisers who specialize in
bankruptcies that can guide the way. Among the alternatives they may look at is a Section 363 sale
under the bankruptcy code.
Maupin also emphasizes the importance of data to prospective buyers. Whether the buyer is financial
or strategic, theyre going to want to see clean, reliable data so they can make an intelligent decision.
Most of the larger companies have the systems in place to do that, but many smaller ones do not.
Thorough sell-side preparation is crucial if sellers want to have a successful transaction.
- See more at: https://www.grantthornton.com/issues/library/articles/energy/2016/Energy-M-A-businessuncertainty.aspx#sthash.6fksLT5R.dpuf

ERP is short for enterprise resource planning. Enterprise resource planning (ERP) is business
process management software that allows an organization to use a system of integrated applications to manage
the business and automate many back office functions related to technology, services and human resources.
ERP software integrates all facets of an operation including product planning, development, manufacturing,
sales and marketing in a single database, application and user interface.

ERP software is considered an enterprise application as it is designed to be used by larger businesses and often
requires dedicated teams to customize and analyze the data and to handle upgrades and deployment. In
contrast, Small business ERP applications are lightweight business management software solutions, often
customized for the business industry you work in.

ERP Software
ERP software typically consists of multiple enterprise software modules that are individually purchased, based on
what best meets the specific needs and technical capabilities of the organization. Each ERP module is focused
on one area of business processes, such as product development or marketing. A business can use ERP
software to manage back-office activities and tasks including the following:

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Distribution process management, supply chain management, services knowledge base, configure, prices,
improve accuracy of financial data, facilitate better project planning, automate employee life-cycle, standardize
critical business procedures, reduce redundant tasks, assess business needs, accounting and financial
applications, lower purchasing costs, manage human resources and payroll.
Some of the most common ERP modules include those for product planning, material purchasing, inventory
control, distribution, accounting, marketing, finance and HR.
As the ERP methodology has become more popular, software applications have emerged to help business
managers implement ERP in to other business activities and may incorporate modules for CRM and business
intelligence, presenting it as a single unified package.
Recommended Reading: The Difference Between CRM and ERP
The basic goal of using an enterprise resource planning system is to provide one central repository for all
information that is shared by all the various ERP facets to improve the flow of data across the organization.

Top 4 ERP Trends

The ERP field can be slow to change, but the last couple of years have unleashed forces which are
fundamentally shifting the entire area. The following new and continuing trends affect enterprise ERP software:
Mobile ERP

Executives and employees want real-time access to information, regardless of where they are. It is expected that
businesses will embrace mobile ERP for the reports, dashboards and to conduct key business processes.

Cloud ERP

The cloud has been advancing steadily into the enterprise for some time, but many ERP users have been
reluctant to place data cloud. Those reservations have gradually been evaporating, however, as the advantages
of the cloud become apparent.
Social ERP

There has been much hype around social media and how important or not -- it is to add to ERP systems.
Certainly, vendors have been quick to seize the initiative, adding social media packages to their ERP systems
with much fanfare. But some wonder if there is really much gain to be had by integrating social media with ERP.
Two-tier ERP

Enterprises once attempted to build an all-encompassing ERP system to take care of every aspect of
organizational systems. But some expensive failures have gradually brought about a change in strategy
adopting two tiers of ERP.