When organizations merge or get acquired, both entities face the complicated task of combining varied IT infrastructures into a unified technology ecosystem. Software due diligence in mergers and acquisitions helps participating entities evaluate their current license portfolios and determine and implement a sound framework for a smooth tech transition, which hopefully, leads to post-merger success. However, software licenses, given their legal stipulations, specific usage rights, and strict compliance requirements, represent a particularly challenging aspect.
The Influence of Software Licenses on M&A
Software plays an important role in shaping the outcomes of mergers and acquisitions, facilitating the seamless integration of entities and contributing to the long-term success of the combined organization. As part of this complex process, stakeholders are tasked with conducting a deep dive into their software assets, addressing critical questions such as:
- What licenses are currently held by each organization?
- Which software applications should be retained or phased out during the transition?
- What are the financial implications associated with acquiring new licenses, renewing existing ones, or discontinuing current agreements?
A comprehensive technology due diligence into the software portfolios of both entities should shed light on these queries and more. It helps determine the agreed value of the transaction by surfacing the potential value and liability it brings to the merged or acquired entity.
The foundation of successful due diligence on software licenses rests upon the license usage analysis and insights derived from “actual and reliable data”. However, this is not always the case.
Software Due Diligence’s Two-Pronged Problem
One significant stumbling block is the access to deep, granular license usage data and metrics. While many software vendors offer basic usage data, these are often insufficient to inform comprehensive license usage analysis, let alone the entire due diligence process.
The second problem is that most companies aren’t equipped with the solutions needed to gain visibility into their license usage, capture raw utilization data, and transform those data into actionable insights.
The Cost of Bad Software Due Diligence
When due diligence fails to thoroughly assess and understand the software assets and liabilities of the entities involved, the consequences can be far-reaching. Without a clear picture of the existing software licenses, their terms, and usage rights, companies may face unexpected costs post-merger. These can include the need to purchase additional licenses for compliance, higher fees for renewing software, or penalties for terminating agreements prematurely.
Inadequate due diligence can lead to surprises during the integration phase, such as discovering incompatible software systems that hinder the smooth merging of IT infrastructures. Unknown or unaddressed security vulnerabilities within software portfolios heighten significant risks like data breaches, loss of intellectual property, and damage to the company’s reputation. The disruption to normal operations caused by software incompatibilities or access issues can easily lead to employee frustration and decreased productivity.
Comprehensive Due Diligence with Open iT LicenseAnalyzer
Open iT’s LicenseAnalyzer offers comprehensive software license usage analysis that enhances technology due diligence in mergers and acquisitions in several ways:
Deep Insight into License Usage
LicenseAnalyzer provides detailed insights into software license usage across an organization, offering granular data on how software is utilized, by whom, and at what frequency. This level of detail allows for a thorough understanding of the value and usage patterns associated with each software license.
Identification of Compliance Risks
By analyzing software usage data, LicenseAnalyzer can identify any instances of non-compliance with licensing agreements. This helps to mitigate potential legal and financial risks associated with unlicensed software usage, ensuring that the acquiring company is not inheriting any liabilities during the merger or acquisition process.
Cost Optimization
LicenseAnalyzer identifies overlapping licenses and underutilized software, allowing organizations to avoid redundant expenditures on software licenses post-merger. This can lead to significant cost savings by consolidating licenses, renegotiating or terminating unnecessary licenses, thereby optimizing the overall software spend.
Forecasting Future License Needs
Through historical usage data and trend analysis, LicenseAnalyzer can help forecast future software license needs for the merged or acquired entity. This enables the acquiring company to plan effectively for future license purchases and renewals, avoiding unexpected expenses down the line.
Support for Negotiations
Armed with comprehensive usage data and insights provided by LicenseAnalyzer, the acquiring company is better positioned to negotiate favorable terms with software vendors during the merger or acquisition process. This may include securing volume discounts, optimizing licensing agreements, or renegotiating terms based on actual usage patterns.
Ensure Business Success After The M&A Deal
A thorough software due diligence process, supported by deep, precise, and current data on software utilization, can lead to a positive M&A outcome. LicenseAnalyzer provides this vital intelligence, offering an exhaustive analysis of license usage that informs the technology due diligence process. This enables stakeholders to make informed choices, engage in transactions with assurance, and lay the groundwork for the success of the merged entity.
Contact Open iT to explore how LicenseAnalyzer can bolster the success of your mergers and acquisitions.
