Mergers, Acquisitions and Divestitures

Changes in ownership and structures brought through by company mergers, acquisitions and divestitures create significant challenges around licensing terms and entitlements

The main cause of Mergers, Acquisitions and Divestitures (MAD) software licencing issues typically occurs when the divested entity becomes an independent 3rd party after the deal has closed and as such they are no longer entitled to use licenses that are owned by previous parent without a Transition Term

The selling organisation is typically required to ensure that the divested entity is properly licensed, an obligation that may be reinforced by a warranty in the deed of sale that confirms the divested entity is compliant with the terms & conditions of contracts, including software licensing contracts.

Unfortunately, the reality is this is not easy nor inexpensive to address post the sale so it is important to address the licencing position before closing out the sale.

Unfortunately, understanding an organisation’s software assets and hardware are often overlooked or take lower priority, which can lead to costly mistakes. These assets aren’t just important in terms of valuation, but each has its own idiosyncrasies, restrictions, and important clauses buried in contracts that absolutely need to be understood.

A major risk for businesses is how major software vendors closely watch their customers’ organisational changes, understanding how these structural shifts and transactions expose business entities to compliancy challenges, thereby targeting such organisations for software license audits. Software audits can be highly disruptive and potentially damaging due to unexpected and unbudgeted costs for ensuring company compliance.

Alternatively, organisations under merger, acquisition, or divestiture undertake due diligence of hardware and software assets.

Early and astute recognition of software risks can be valuable negotiation assets in terms of trade sale and company valuation.

Equally, if overlooked, hidden software license liabilities can cause warranty or indemnity claims, with little-to-no opportunity to remediate. This not only helps establish part of a company’s valuation, but also establishes a baseline negotiation position for new vendors as they become necessary. 

How Invictus Helps

For any business going undergoing organisational change or facing vendor-licensing audit, Invictus can help your business by:

  • Creating an accurate licence position across all software that will be part of the acquisition or divestiture. This determines what your licence footprint will look like following transaction, outlining what software can move, what needs to stay, and outline potential compliance or commercial risks and impacts.
  • Reviewing contract terms to highlight those risks that may impact compliance or commercial operations, supported by advisory services for handling any situation.
  • Determining the impact on support contracts through a clear understanding of repricing policies (if existing support contracts are split or reduced).
  • Reviewing the software contracts to determine if you have divestiture clauses built in or if there are allowances within the broader agreements
  • Facilitating and negotiating a suitable transition agreement that most organisations need with these activities underway.
  • Ensuring divesture clauses are built in moving forward