November 2019
Company Spotlight
Quorum Software
For this Company Spotlight, we interviewed Quorum about how their software suite is making the oil and gas industry more efficient as well as their approach on growth through acquisitions. Quorum offers an industry-leading portfolio of finance, operations and accounting solutions that empower its customers to streamline operations that drive growth and profitability across the energy value chain. For more information on Quorum, please visit www.quorumsoftware.com.
Industry Insights: Before the downturn starting in 2014, almost all of the oil and gas industry’s investment dollars went to technologies for drilling and completing wells faster. As the industry realized that this downturn was going to be a “lower for longer” business environment, those investment dollars focused on how to drill and complete wells more effectively (e.g., longer laterals, more frac stages, etc.). Now, it appears operators are turning to software to play a major role in operational efficiency, but the development of the energy software sector is in the early stages. To put it in baseball terms, Quorum and PPHB believe it is still the third inning.
Value Proposition: Since its founding in 1998, Quorum has focused on developing software and services that enhance the efficiency of back-office operations for oil and gas companies. Quorum was one of the first companies to connect the field to the back office. For example, oil and gas companies were tracking data such as production volumes from the field using complex spreadsheets or ERP systems not tailored to oil and gas (i.e., SAP, Oracle, etc.). To bridge the gap, Quorum developed purpose-built applications for oil and gas that are powered by a common platform to streamline the movement of data. The next challenge for Quorum and the industry as a whole is to take the vast amounts of information scattered across organizational “silos” and enable employees to utilize the right data while also providing a seamless user experience for everyone.
Approach to M&A: With Quorum acquiring three companies in 2019 (Coastal Flow (including Flow-Cal), Archeio, and OGsys), we were curious if growth through acquisitions was a specific management initiative or if Quorum was reacting to opportunities. We found out that when Thoma Bravo (TB) invested in Quorum in August 2018, the oil and gas software space was of keen interest. Therefore, TB came in with a plan to grow the Quorum platform through acquisitions. Quorum explained to us that management evaluates its portfolio for adjacent opportunities and areas of expansion. For example, Coastal Flow (Flow-Cal) and Quorum were competing providers of measurement software. The acquisition added industry-leading measurement software plus liquid and gas measurement services and bolstered Quorum’s subject matter expertise with a talented team of measurement professionals.
Flow-Cal was a highly profitable business, unlike most acquisition targets in the oil and gas industry, where software vendors are especially sensitive to fluctuating commodity prices. So our next question for Quorum is, “how does the company evaluate acquisition opportunities in this environment, given that few companies are cash flow positive?” Quorum, like any acquirer, said it prefers strong cash flow generation, but it is not a requirement. Instead, Quorum looks for offerings that can be plugged into its organization and take advantage of the company’s size and scale.
Closing Thoughts: Quorum is focusing its M&A attention on the question, “What catalyst(s) will accelerate the adoption of software as a service (SaaS) in the oil and gas industry?”. To enhance shareholder return in a challenging commodity price environment, oil and gas companies are driving efficiencies inside each operating “silo” and also enabling them to share information with and learn from each other. Oil and gas companies are beginning to turn to software solutions like Quorum’s to create those connections, and we expect that trend to continue and accelerate as operators see results to their bottom line.