Software audits by companies like Oracle, Microsoft and IBM are frequently triggered when an organization engages in MAD activity; Mergers, Acquisitions and Divestiture.
Software asset managers (SAM) and procurement staff should be aware of the specific challenges related to MAD activity within their organization. It’s vitally important to retain policy documents and licensing contracts to ensure compliance. When these vendors become aware of MAD activity at an organization, they typically investigate these specific areas:
- Has the organization purchased new licenses to account for an increased headcount?
- Is either organization’s systems being absorbed into the other or will they function as two distinct entities?
- Does either organization have license rights to share licensing?
The vendor’s sales or license compliance teams need to know and understand the answers to these questions, as the sheer act of any MAD activity greatly increases the likelihood that they will be audited by a software vendor, or receive an offer by them to do a “health-check” with the organization to ascertain if it’s in compliance. Refusing a health-check is permissible, but will very likely lead to a formal audit.
Other organizational changes resulting from a merger, acquisition or divestiture can create additional factors that will trigger an audit.
These factors include:
- Virtualization – if the new business entity engages in virtualization as a means of reducing costs
- Decreased License Spend – if a new business entity reduces its licensing spend to account for a reduced workforce
- Competitor Cloud Purchase – if the business is running or intends to run one vendor’s software on another vendor’s cloud
Risks
For many vendors, the standard policy for organizations which are out of compliance is a mandatory license purchase at lower than normal discounting, plus maintenance and support, for any licensing shortfalls. These costs can range from tens of thousands to tens of millions of dollars in un-budgeted costs. If the organization did not negotiate for the right to transfer their licenses to a new business entity, they could be forced to purchase an entire new set of licenses to cover areas the organization thought would be covered by current licensing.
Recommendations
Software asset managers and IT executives should focus on these key areas to ensure compliance and defend against a software audit
- Retain copies of all contracts and relative vendor policies from the time the contracts were signed, as they often change
- Perform due diligence to ensure that your installed applications and users match your entitlements
- Negotiate key terms that will best support future changes of your organization
- Engage software asset management experts to help with purchasing, negotiating and managing license contracts and renewals
- Initiate a “Self Audit” with industry experts to ensure compliance before you get audited by the vendor
About Miro
Helping clients navigate licensing decisions and evaluate options for M&A situations is a standard practice for Miro. Here are just a few examples of how Miro has guided and supported clients who were involved in M&A activities. Contact us to learn more.