Legal entity
rationalization
Organizations can enhance
profitability by creating
sustainable structures that
align with their
business strategy
Typical business case for legal entity rationalization (LER)
reductions. We can also help with your efficient integration of
operations and the alignment of your new enterprise structure with
your business objectives.
Legal entities cost money and resources to hold and manage.
Companies can improve long-term business performance by
aggressively reducing the number of legal entities and combining
their operations efficiently with other group members.
Through our deep experience advising on global plans to rationalize
legal entities, EY can assist our clients in securing significant cost
Below are some key ways that LER can help your organization
reduce or avoid costs, increase operational synergies and streamline
governance. EY can assist with the process.
Potential benefits
How EY can help
Administrative
cost savings
•
•
•
•
•
Clients report annual carrying costs of
$25-50 thousand per legal entity, indicating a
$2.5-5 million annual savings opportunity for
every 100 entities eliminated:
• More productive human capital
• Inefficient tax and legal structures removed
• Reductions in inter-affiliate transactions
Identify entities to be rationalized
Expedite the elimination/consolidation process
Reduce implementation costs
Bring seasoned professionals to address resource constraints
Use established methodology to re-energize stalled or
failed LER projects
Clients indicate administrative cost savings in the following key areas
Finance/accounting
•
•
•
•
Statutory audits
Internal accounting/account reconciliations
Auditing each entity
Management and external reporting
Hard
Soft
√
√
√
√
√
√
Information technology
• Initial “plug-in” of legal entities into
business systems, controls, reporting
• Data warehousing of accounting and legal
information
• Software licensing for each entity
• Duplicative IT functions, platforms, systems
• Federal, state and local country income tax
reporting and filings, disclosures
• Valued-added and other indirect tax filings
• Net worth/capital stock tax filings
• Tax basis and tax attribute monitoring,
transfer pricing
Hard
Soft
√
√
√
√
√
√
√
Legal/regulatory/contractual
√
√
√
√
√
√
√
√
Human Capital
• Duplicative management functions
• Duplicative HR systems, pensions, benefit
plans and profit-sharing plans
Tax
• Licensing, permits, fees and insurance
• Maintaining general corporate legal documents
and structure
• Agreements with same or similar counterparty
• Intercompany agreements and transfer
pricing documentation
• Liability risks
√
√
√
√
√
√
√
√
√
√
√
Intellectual property
√
√
• Similar IP in various legal entities
• Infringement risks from current structure
√
Operational
synergies
Rationalization can result in synergies through entity-specific
operational integration and thoughtful placement of each
target entity’s human capital, assets and operations
Focus on:
• People — rationalized responsibilities
• Process — streamlined to help increase efficiency, revenue and
cost savings
• Technology — common set of applications, simplified accounting
codes and reporting and consolidated maintenance and
management of entities
• Third parties — consolidated contracts, volume discounts,
simplified vendor feeds, reduced contract management support
Cost avoidance
Avoid plugging entities to be eliminated into performance
improvement agendas, e.g., global finance transformation,
accounting and business systems, cash management, etc.
• Identify entities to be maintained versus those to be eliminated
early in the process, so clients can build business performance
initiatives on top of a streamlined structure
Structural
alignment
Opportunity to concurrently:
• Better take advantage of changing market conditions and
customer needs
• Understand new, emerging markets, product portfolios and
address customer needs
• Assess business strategy, analyze core/new markets, review
competition and help align legal entities with changing industry
conditions
• Provide fresh thinking around how to structure the realigned
organization to take advantage of market opportunities and
operate effectively
Governance and
control
• Increased transparency
• Better management of legal entity populations
• Risk architecture that distinguishes high-risk entities from
low-risk entities
• Focus on population management — recommendations for legal
entity procedures, manuals and committees designed to meet
organizational objectives
• Recommend risk architecture and tiering and efficient control
framework to help save costs and resources
EY addresses stakeholder
challenges across your business
Mass-scale elimination of legal entities can affect functional
areas across the business. We understand the
perspectives of your stakeholders and we
deploy an efficient process to identify,
validate and resolve key
considerations to quickly meet
• Benefits leveling
• Pay leveling
your business objectives.
•
•
•
•
•
•
•
•
• Benefits protection
• Job protection
• Placement of “dog”
assets and operations
Work
councils,
unions, etc.
Attribute preservation
Prior exposures
Special needs entities
SPVs
Up-chain/down-chain
Springing/shifting debts
Apportionment
Treaty impacts
•
•
•
•
Asset protection
Permissions
Contracts
Litigation
Tax
Legal
Rating
agencies
• Impact on collateral pool
Select
stakeholder
considerations
Lenders
Regulatory
HR
Business
• Personal liability of
local country directors
• Impact on brand
• Operational impact
• Affiliate guarantees,
letters of credits
• Export licenses
Finance
Systems
• System mapping
• Data warehousing
• IT software licenses
•
•
•
•
•
• Impact on consumers
• Sound governance and
controls
• Capital and solvency
requirements
• Maintaining regulated vs.
non-regulated entities
• Restrictions on product
mix
• Reporting
• Transparency
• Permitted activity
• Permissions
•
•
•
•
•
•
PE exposures
Plan aggregation
Plan funding
Employee perceptions
Unions, work councils
Tribunals
Accounting
Pooling charts of accounts
Stacking ledgers
Up-to-date statutory audits
Segmental reporting
Impacts on internal
controls, affiliate
transactions
• Structured finance, base
shifting, repatriation
• Efficient cash channeling
• Avoiding cash traps
• Lender covenants
• Debt ratings
Key services to help you enhance performance
Our services involve two phases. In the first phase, we assess your legal entities and propose a transactional
architecture and step plans. We then help you implement the legal entity rationalization process based on our assessment.
Assessment phase
Implementation phase
• Legal entity assessments
• Cross-functional and business line legal entity
assessments
• Validation of objections to elimination
• Identification of proposed end-state for each jurisdiction
• Proposed transactional architecture
• Proposed summary step plans
• Detailed build-out of jurisdictional step plans
• Operations
• Integration support
• Synergies validated
• Tax
• Assessments in country, down-chain, up-chain
• Tax opinions and jurisdictional memorandum
• Tax return disclosures
• Governance*
• Structural governance models
• Deep dive jurisdictional analysis to validate architecture
*EY does not provide legal services or advice.
Streamlining legal entities can
help companies manage their
Capital Agenda
Pr
es
e
Op
ti
ing
iz
m
 Stress and distress — e.g., liquidity issues and
turnaround plans
 Customer and supplier analysis
 Preserving tax assets and
minimizing costs
 J]ÕfYf[af_gjj]kljm[lmjaf_\]Zl$
]imalqYf\gl`]jgZda_Ylagfk
ing
rv
 Dealing with stakeholder
relationships and pressure
 Dispute resolution
 Optimizing asset portfolio
 Delivery of synergies and
effective integration
 Improving working capital
and releasing cash
 Optimizing capital structure
 Optimizing tax and
corporate structure
ve
st
in
ai
si
In
 Acquisitions and alliances
 Planning and structuring
transactions to optimize
stakeholder return
 Focused due diligence to mitigate
risk and drive value
 Asset valuations
 ;gkl%Yf\lYp%]^Õ[a]flkljm[lmj]k
ng
The Capital
Agenda
g
R
 >mf\jYakaf_ ]imalqYf\\]Zl!2
IPO readiness, rights issues,
private equity, private
placement and capital
markets
 Optimizing funding structures
 Asset divestment
 Infrastructure projects
 ;gkl%Yf\lYp%]^Õ[a]fl
structures
Why EY?
• Seasoned cross-functional teams address internal resource
constraints across finance, tax, legal, regulatory, operations,
among other areas
• Industry experience helps clients resolve issues unique to their
operating environments and leverage best practices from
leading organizations
• Early delivery of validated cross-functional and operational legal
entity profiles allows teams to understand and leverage key
knowledge across the organization
EY | Assurance | Tax | Transactions | Advisory
About EY
EY is a global leader in assurance, tax, transaction and advisory
services. The insights and quality services we deliver help build trust and
confidence in the capital markets and in economies the world over. We
develop outstanding leaders who team to deliver on our promises to all
of our stakeholders. In so doing, we play a critical role in building a better
working world for our people, for our clients and for our communities.
EY refers to the global organization, and/or one or more, of the member
firms of Ernst & Young Global Limited, each of which is a separate legal
entity. Ernst & Young Global Limited, a UK company limited by guarantee,
does not provide services to clients. For more information about our
organization, please visit ey.com.
About EY’s Transaction Advisory Services
How you manage your capital agenda today will define your competitive
position tomorrow. We work with clients to create social and economic
value by helping them make better, more informed decisions about
strategically managing capital and transactions in fast changing-markets.
Whether you’re preserving, optimizing, raising or investing capital, EY’s
Transaction Advisory Services combine a unique set of skills, insight
and experience to deliver focused advice. We help you drive competitive
advantage and increased returns through improved decisions across all
aspects of your capital agenda.
© 2013 EYGM Limited.
All Rights Reserved.
EYG no. CE0786
1307-1103210
ED 0114
In line with EY’s commitment to minimize its impact on the environment,
this document has been printed on paper with a high recycled content.
This material has been prepared for general informational
purposes only and is not intended to be relied upon as
accounting, tax, or other professional advice. Please refer to
your advisors for specific advice.
• Early delivery of transactional architecture to gain speed, reduce
risk and streamline implementation
• Leading practices around structural governance models and
population management
ey.com
For more information please contact:
Contact
LER functional area
Phone
E-mail
Steven McLeighton
Americas LER practice leader
404 273 3191
[email protected]
Torsdon Poon
Domestic tax
202 327 8005
[email protected]
Thomas Bottomlee
International tax
312 879 2780
[email protected]
Gerrit Groen
Foreign desk / Global resourcing
212 773 8627
[email protected]
George Brooks
Human capital
212 773 8237
[email protected]
Michael Hickey
Transaction tax
212 773 1506
[email protected]
Marshall Anderson
Business modeling / LER tools
212 773 3996
[email protected]
Ronald Hofmeister
Operational synergies
213 977 3029
[email protected]
Steve Katz
IT / Systems mapping
732 516 4598
[email protected]
Bob Cullen
Governance / Risk
612 371 6709
[email protected]
Kripa Rajshekhar
Organizational strategy
312.879.3224
[email protected]
Lisa Choi
Financial Services Regulatory
212 773 8947
[email protected]
David Philbrick
Valuations / Insolvency
617 585 1968
[email protected]
Myles Corson
Statutory Reporting
212 773 3232
[email protected]
Mark Garcia
Accounting compliance & reporting
313 628 7100
[email protected]
Jarrod Simpson
Corporate secretarial
+31 88 40 71131
[email protected]
Briana Richards
Restructuring / Debt workouts
212 773 2716
[email protected]