Mergers & Acquisitions - Software Licensing in the Due Diligence Process

It's been said that 2010 is the year of M&A (LOL...again, there have been many years in the past that have also held that moniker) and having just seen a posting on LinkedIn on this topic reminded me that it's probably time to blog about it again (check out my earlier posting on this topic for additional information).



There are lots of things to be considered, but I'm going to focus on the company doing the acquiring for this posting - if you need other scenarios check out our whitepaper on the topic.



There are typically two scenarios in acquiring: (1) you don't acquire any of the IT assets, or (2) you acquire all the assets of the company, including IT assets. The first scenario is simple as you know walking in that you have to provide these assets yourself. The second scenario is where the waters get muddy.



If acquiring all of the assets, the assumption is typically made that all the software installed at time of acquisition is (a) properly licensed and (b) the license will transfer to the acquiring company. Unfortunately, these are both naive assumptions and too frequently incorrect.



In the ideal situation, IT would have the opportunity to receive the licensing statement (including copies of contracts and proof of licensing) for the company being acquired in advance so it could be factored into the valuation of the company (remember software is frequently the 2nd or 3rd largest line item in the IT budget and represents significant expense).



However; reality is that acquisitions are typically completed without IT's involvement or even if IT is involved they are very limited in the information that can be shared in advance of the completion of the deal.



So, how can IT help the company avoid acquiring someone else's licensing headache? Through education and quick follow up.



A couple of basic steps:

1) Get the issue on the table in advance of M&A activity. During M&A you're going to have a hard time getting the attention of the proper parties so preempt the situation.

2) Get some allies on the topic - legal counsel, CFO, compliance officer and purchasing officer are all key allies. Obviously this means senior level IT to senior level operations discussions.

3) Create a high level IT due diligence checklist of what IT truly needs to (a) help avoid large unnecessary costs and (b) ease integration post acquisition.

4) With the aid of your allies, get the IT due diligence checklist added to the overall company due diligence checklist. Be prepared for push back and be able to quantify through hard dollar and compliance risks the reason behind each item.

5) Post acqusition, work fast. Not only do you have a mandate to get the company integrated but you also need to ensure that if there are any licensing costs associated with acquisition that you're able to identify those for proper accounting in the financial statements as part of the acquisition cost.



Get help - understanding the licensing terms for each major publisher and the transferability of those licenses can be a daunting task. Now is the time to focus on integrating your two companies, have an expert handle the acqusition licensing issues for you.



Any other suggestions? Post them!

Microsoft SQL Server 2008 R2 Licensing Changes - CALs Also!

(Updated 5/18/10 based on info from Microsoft)

I heard an ugly rumor yesterday about Microsoft SQL Server 2008 R2 from Gaby Amar at Softmart saying that in order to use SQL Server 2008 R2 in a server/CAL model you will have to have 2008 R2 CALs as well (typically for R2 releases you don't need an updated CAL). Well...checked it out with Microsoft licensing and he was absolutely correct (I should have known better than to be surprised, LOL)!

Basically, Microsoft SQL Server 2008 R2 is a major release (think in terms of a release such as Microsoft SQL Server 2000 to Microsoft SQL Server 2005) so don't let the lack of year change in the naming convention fool you.

Customers who have active Microsoft Software Assurance on their exisiting SQL Server products will have the new release rights, but those that don't will need to purchase new licenses in order to run the software (for those who run in Server/CAL mode this means both new server licenses and new CAL licenses).

CAL Requirements

1. If you have Microsoft Software Assurance currently in effect on your SQL Server CALs, then you are entitled to SQL Server 2008 R2 CALs
2. If you do not have Software Assurance, you must have SQL Server 2008 R2 CALs to run SQL Server 2008 R2 using the Server/CAL software licensing model (in other words...don't try to run with your older SQL Server 2008 CALs).

You may be wondering why I'm making such a big deal about this...after all it is a new release, of course new licenses are required. My point is this: it is a departure from how Microsoft has licensed Windows Server 2008 and Windows Server 2008 R2 where the Windows Server 2008 CAL can still be used on the newer version Windows Server 2008 R2.

Additionally, there are changes to the processor licensing for SQL Server 2008 R2. You might want to check out some of these resources for more information on this and other SQL Server 2008 R2 changes.

Microsoft has provided the following links for further information on licensing:

• The SQL licensing quick reference guide: http://www.microsoft.com/sqlserver/2008/en/us/licensing.aspx
• Direct link to the guide: http://download.microsoft.com/download/2/7/0/270B6380-8B38-4268-8AD0-F480A139AB19/SQL2008R2_LicensingQuickReference-updated.pdf
• Overall SQL Server 2008 Licensing FAQ: http://www.microsoft.com/sqlserver/2008/en/us/licensing-faq.aspx
• Microsoft SQL Site: http://www.microsoft.com/sqlserver/2008/en/us/
• Product Use Rights has info on the following products: R2 CALs (OCS, System Center Configuration Manager, System Center Operations Manager, System Center Virtual Machine Manager) http://www.microsoft.com/licensing/about-licensing/product-licensing.aspx

For more information on virtualization and SQL Server 2008 R2 check out Andrew Fryer's blog.

If you have any questions - let me know! This is a huge change in Microsoft's licensing trend.

Software Licensing - Gaming the System

It seems in a number of my recent conversations with a major software publisher (who has one of the most complex licensing structures going)...that they keep referencing companies that "Game the System" and what a wrong thing that is to do.

Question - when they make the rules, can you really ever "Game the System"? Don't get me wrong, we specialize in helping customers get creative with how to reduce their licensing costs for their software...but if it's allowed within their convoluted licensing terms, how can you be doing anything wrong?

Take the IRS for example (since it's April 15th), their rules are complex (far more complex than any software publisher) but they expect you to take advantage of every credit that you are entitled to through their rules. They don't call foul and say you're "Gaming the System" when you take advantage of rules that work in your favor. Why should a software publisher?

LOL - yes, I did just compare this software publisher to the IRS...LOL!

Frankly, the ones who write the rules hold the cards - if you can work within those rules and minimize your costs, who are they to complain? If they don't like it, they can change their rules.

What do you think...is it possible to "Game the System" in a negative way?