Software Licensing for Mergers, Acquisitions & Divestitures

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

Software Audits

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.

MAD Activity Audit Triggers:

• 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 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.

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 . Even if one side of the transaction did their licensing due diligence, the other side might not have.  While one side may have monitored the software asset management (SAM) issues, the other side may not have.

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.