In my first blog, I highlighted the considerations that any company should take when actively working on an M&A.
In the second I looked at some real life examples where organizations we work who have seen the advantages of performing due diligence around software licensing and saved millions. To round the series off, I investigate some of the complexities of software licensing and rights.
Don’t assume you own the rights to the software just because you have bought the company
Due diligence needs to include thought and planning around what happens to the software entitlements currently owned by the target company after acquisition. It’s easy to assume that because you’re buying the company, you’re buying the software rights. But that’s a dangerous assumption that often turns out to be an expensive mistake.
A lot of enterprise software licenses are sold with specific ownership caveats (often a named legal entity as the ‘owner’) that prevent entitlements being re-allocated to a new organization, even in the event of an acquisition.
At best, many software vendors charge a fee for any such transfer of ownership. At worst, it just can’t be done and so the purchasing company will need to decide whether new licensing will need to be bought or whether it can extend its own existing agreements to cover the new systems.
A divestiture can be equally complex
If you are selling part of an organization, you may have software that is dependent on other software. For example, you may be running a virtual environment, and you have licenses to use software in that virtual environment, but now the divested organization no longer has access to the same datacenter with the same licensing privileges. In a multi-tenanted scenario for example, a company could be running an application dependent on an Oracle database. Following the de-merger, the applications will get transferred but the Oracle installation stays with the selling company.
In this scenario, it will cause an issue for the company that is sold off as that software can no longer legally be used. These sorts of issues are overlooked and the software ends up being used illegally as the divested company is unaware it needs new licenses for the software.
You can imagine what happens when the software audit arrives (the software publishers pay as much attention to divestiture as they do acquisitions).
Using the right technology with the right level of approach will enable an organization to mitigate a tremendous amount of licensing risks. Having the right SAM technology, such as Snow License Manager, in place enables an optimization program which can quickly identify a surplus of thousands of licenses of unused software removing the necessity to buy more (equally it can identify a deficit).
If there’s a good diligence program in place it would be able to remove these licenses from the contract (or indeed buy enough licenses to be compliant) and negotiate a contract transfer in place at the point of acquisition rather than at the point of audit where the negotiation position favors the software vendor and is particularly weak for the licensee.