Microsoft Licensing for Mergers, Acquisitions & Divestitures

Software asset managers (SAM) and procurement staff should be aware of the specific challenges related to MAD (Mergers, Acquisitions & Divestitures) 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?
• Are licenses included in the activity?
• What sort of agreement is in place, when does it expire or renew, and does either organization have the rights to share licensing?
• Does the organization have rights to use the licenses in the countries where they operate?

A Miro client recently purchased a subsidiary in Europe and was able to save $800,000 in licensing costs by working with Miro.

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 wants to reduce 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
• Software Assurance – The benefits of Software Assurance not only affect upgrades, but other factors that might not be considered

Risks

For many vendors, the policy for organizations which are out of compliance is a mandatory license purchase at lower than historical discounting, plus Software Assurance as applicable.  These costs can range from tens of thousands to tens of millions of dollars in un-budgeted costs.

If the organization does not have the proper agreement(s) in place, the transfer of licenses could be impacted. And 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 SAM issues, the other side may not have.

Recommendations

SAM Practitioners 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
• Ensure that the license transfer rights based on your agreement are understood
• Perform due diligence to ensure that your installed applications and users match your entitlements
• 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