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Untangling M&A with Financial MDM

Business Insider ran with this rather provocatively entitled article: Salesforce Just Disclosed A Really Odd Thing: It Doesn’t Really Know Where Its Revenue Comes From.

It turns out that the US Security and Exchange commission has been working with salesforce.com to understand how they came up with the growth numbers in their filings. The results can be summed up in this rather surprising admission:

“.. we [salesforce.com] respectfully note that we currently do not have financial systems and controls in place to be able to accurately quantify the percentage of our total revenue derived from subscriptions to the Sales Cloud or any other core service offering in any particular fiscal period.”

While it does make one (herehere) wonder how salesforce performs internal projections, as the author of the Business Insider article points out, the root cause of these headaches could be salesforce’ acquisitions.   Here’s a table with salesforce’s public acquisitions since 2009:

Table 1: Salesforce acquired twenty five companies over the past five years, ExactTarget was the largest @ $2.5B

For each and every single one of those acquisitions the finance team would have had to reconcile all of the financial master and reference data used by the respective parties.  On the surface this seems like a relatively straightforward task. However it can get quite complex quite quickly once you realize that the master and reference data is rife with inconsistencies.   Some simple examples:

  • “Europe”  in the parent is only the European Union, while “Europe” means Europe, Middle East and Africa (EMEA) for the subsidiary.
  • Revenues are from subscriptions at the parent, while at the subsidiary revenues are from  perpetual license, maintenance and professional services, or
  • The parent has been using GAAP rules to account for convertible debt while the subsidiary has been using IFRS.

It’s easy to see that without any tools, such as master data management, managing the financial master data (accounts, entities), relationships, hierarchies and their intersections things can get out of hand. Also, all of this is ignoring the fact that a similar reconciliation exercise will need to be repeated for every view, or alternate hierarchy, needed from a regulatory, tax, and legal perspective.  And don’t forget there are users of financial hierarchies outside of finance–product management, sales, marketing–who want their own custom hierarchy.

A master data management software, especially one with governance and strong support for versioning, can help support, not only, the consolidation in the context of an acquisition, but also, all of the day-to-day tasks that affect the financial team.

We’ve had several customers include finance as part of their multidomain or multiple-domain MDM implementation of EBX5 notably UTC (more details here and here).  For more details about our approach please check out: http://www.orchestranetworks.com/finance/

by Conrad Chuang