IBM Licensing with Mergers, Acquisitions & Divestitures

IBM Licensing and MAD Activity

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?
• Are 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?
• Does the organization have the right to use the licenses in the countries where they operate?

Example:

A Miro client recently purchased a subsidiary in Europe, and thought they would have to purchase all new software licenses for use with the new entity. Miro was able to save them $800,000 by helping them modify the licenses they already had.

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 complies.  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

Risks

For many vendors, the standard policy for organizations that are out of compliance is a mandatory license purchase at lower than historical 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.

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 in 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