Buying a company or merging to create a new company, without understanding the current software licensing position, can lead to significant and avoidable costs. Financial and legal due diligence is standard practice in mergers and acquisitions, but IT implications are seldom given the same required attention. Software Asset Management (SAM) is a recurring blind spot in IT due diligence, often leading to licensing exposure and unforeseen integration costs. Unplanned and unnecessary IT costs can significantly impact on the overall economic viability of the deal. IT due diligence will eventually become a standard part of the mergers and acquisitions process.
In the post-merger environment, with significant changes taking place such as role changes, redundancies, new computer systems and business processes, the addition of new geographical locations and new legal jurisdictions, this is likely a time when compliance is low. Therefore it is not surprising that announcements of mergers and acquisitions are an impetus for software licence audits by vendors.
Key questions to ask include:
- What is the current position with software licensing across both companies?
- What is the software licence shortfall value of the target company?
- Has the software licence shortfall cost been factored into the sale price of the business?
- How mature are SAM processes in both companies?
- What will the software licence position look like after two companies have merged?
- How much will it cost to purchase new licences?
- Who owns the software licences?
- Can the software licences be reallocated to a new organisation?
- Are existing licences transferable under the terms of the original agreement—and are they valid in the new legal entity?
- What opportunities are available to renegotiate licences?
Important points to remember are:
- Proactive dialogue with software vendors during the merger or acquisition process will result in increased bargaining power and strengthen supplier relationships
- Reactive dialogue in response to a software vendor licence audit puts the licensee in a relatively weak position
IT due diligence must become non-negotiable in any acquisition strategy. As software landscapes become more complex and licensing models evolve, asset visibility is not optional, it is essential.
Information security, risk management, internal audit, and governance professional with over 25 years of post-graduate experience gained across a diverse range of private and public sector projects in banking, insurance, telecommunications, health services, charities and more, both in the UK and internationally – MORE