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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.
Subordinates must be affiliated with the central organization, subject to its general supervision
or control.
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.
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:
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.
Finance transformation
Business events drive an urgent need for finance transformation:
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
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.
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
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.
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.
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.
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.
To grow in this dynamic world, your company must evolve. Meeting rapidly changing market demands
requires foresight and sharp responsive business skills in:
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.
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.
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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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.
Despite the pressure to curtail production, U.S. oil producers have maintained output by:
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:
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.
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.