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Why M&A due dilligence needs SAM - PT II

 

As I commented in my last blog, due diligence around software licensing during any takeover should be a primary activity, otherwise it can quickly lead to compliance risks (unplanned costs) and over spend (unnecessary cost).

Example - post-audit approach

We’ve seen at first-hand is when a company (that approached us post-audit) had invested into another organization.
Having made an acquisition for just over $40 million, it subsequently got hit with several vendor audits (remember what I said previously about M&A activity being a key audit trigger) which amounted to $29 million in a shortfall of licenses, based on what was installed versus what they now owned.
That takeover would never have gone through (at least, in the form that it did) had the acquiring organization realized that they were buying so much debt.
Ultimately, the investing company found to their cost that they had not purchased the target company for its true value.
Commercially, the acquisition still might have gone ahead, but the new owner would have at least demanded the software licensing shortfall be addressed prior to any money changing hands, or at least factored that into the buying price.

Example - pre-audit approach

Another Snow customer in the United States acquires scores of companies every year. As part of their standard due diligence process during a takeover, they use Snow License Manager to look at the licensing position across the top five software publishers in target companies.
It takes the existing inventory of the network, scans the environment and brings the entitlements into the SAM platform.

In 2014, the company pulled out of two planned acquisitions due to identifying massive shortfalls in software licenses. One of the target organizations themselves then invested in Snow License Manager and quickly cleaned up its environment, removing unused software and in the process mitigated more than 85% of its original liability.

As a direct result of their investment in SAM practices and technologies, this same organization reduced the cost of their software renewals in 2015 by 30%, representing a saving of up to US $4 million. 

As of writing, the acquisition talks are back on track. These examples highlight the importance of ensuring that the software licensing position is managed, controlled and factored into the cost of the takeover, as it can make all the difference – it can run into $ millions - in the ultimate success of an acquisition.


In the next and final part of this particular blog series, I’ll discuss what considerations are needed to mitigate risk around software licensing and how to avoid being under-licensed when audits take place. Generally, waiting till the point of audit means that it’s already too late to have the upper-hand to negotiate favorable terms for software. 
You will be in a much better position if you have optimized your estate at the time of acquisition and performed the necessary activities of either buying enough licenses to be compliant or addressing the surplus.

To learn more about how Snow and its partners can help you be ready for M&A type activity, contact one of our SAM experts today.