Fusões, aquisições e alienações (MAD)

[0:00] Mae: Good morning, good afternoon and good evening. This is Open iT’s webinar entitled Mergers, Acquisitions and Divestitures. My name is Mae and I will be your host for today. This webinar will focus on the crucial aspect of software licensing within the context of mergers, acquisitions and divestitures as a way to address the challenges and complexities faced by large organizations during these processes. Our webinar emphasizes vendor analysis, optimizing software expenditure and ensuring continuity of operations. The session aims to provide actionable insights and methodologies for managing engineering software licenses efficiently, thus facilitating smoother transactions during corporate restructuring events. If there are any questions you may send them to webinars@openit.com, again that’s webinars@openit.com and we will try to answer them during the Q&A or get back to you via email.

[1:02] Our presenter has been an industry speaker since 2014, based in Houston. She is a high energy senior level consultant with more than 35 years of diversified experience in the technology industry. She’s a proven leader with a unique blend of responsibilities in small and large companies with a passion for building successful businesses. Currently she is helping clients solve their business issues around software licensing. Ladies and gentlemen, please welcome Linda Cole.

[1:34] Linda: Thank you Mae, I really appreciate the introduction and welcome everybody to our webinar this morning where we’re going to discuss at a high level the challenges around mergers, acquisitions and divestitures. They all have unique challenges and let’s just dive into it this morning.

[2:04] So one of the most common things I hear from customers is that something will happen in the organization, again merger, acquisition, divestiture, and they’ll say the biggest challenge was they weren’t involved, they weren’t included in the due diligence or the asset transfer. Maybe they were asked for a list depending upon if it was a merger, an acquisition, or divestiture. Maybe they were asked for a list of software used or that type of thing but they really weren’t involved in the process in the whole thing. And so then what happens is the deal closes and then there’s a really short time frame to react. So it really really presents a challenge and then of course the most common thing is not having anything in advance. So visibility is absolutely the number one challenge that customers tell me that they face.

[2:54] And then kind of after that it’s visibility of all these things right. Are there any audits going on that are around the applications that are either being sold off or that are being brought in? What are the security concerns? This can be different depending upon your environment. So when two very large organizations merge they probably have different security policies and so trying to get those together, whereas if a larger company is acquiring a smaller company maybe there’s not really any security or not the same level of security. And then again everything keys off of this paperwork right. It could be digital, it could be paper. What customers tell me is it’s always a combination, it’s not all digital, it’s not like hey I can get a quick report that shows me what I’m either acquiring or what’s going out. So these are some of the challenges that are around that.

[4:00] So kind of the first step, what do we need to do? The first thing is you need an inventory. Regardless if you’re divesting, you need an inventory of what is going with that divestiture, or if you’re acquiring or merging, what is coming into the organization. And then I really think from a best practice perspective you need to be able to identify what’s urgent versus what’s important. So ranking by expiration date, contract value, top application cost really helps you get that visibility to say okay what do I need to work on first. Because again the best practice is to create a matrix. I see folks and they’ll do part of this right, they’ll say okay I have these vendors, these applications, but they don’t take it all the way through. In other words, does that agreement have an assignment clause, yes or no, and then of course into the details of that, are there true ups? Because a lot of times they’ll just be looking at the contract dates and not those interim true up dates. Is this a direct with the software vendor or is it through a reseller? What kind of licensing, that kind of thing. When you create this matrix what it does is it provides you with a kind of a game plan if you will as well as a checklist.

[5:18] I recommend that you put this together but don’t get buried in the details. In other words, fill in as much information as you can and if you don’t know or it requires more research just leave that blank and then assign those blanks to other people. What I see folks do that really kind of makes it more cumbersome in these environments is they’ll take the top 10 right, they’ll start focusing on that and they don’t ever make it through the list because it’s so time consuming trying to get all of the data that’s needed. So if you just fill in what you can and then go back and have people assigned to fill in the blanks. The benefits of this are probably obvious but it’s to help minimize risk, it’s to help ensure continuity of service and really optimize cost. So especially if you’re bringing in, for a merger or acquisition, you’re probably going to need to do some analysis to see okay do I have enough licenses, do I have too many, can I merge these contracts, can I make them co-terminus, what is the best position going forward for these various different applications? So again that matrix will provide a checklist for all your activities and help you move through this process more quickly. It also gives you an area to create from a dashboard perspective for management.

[7:00] Compliance is a component that we don’t really, it’s there but secondary. Again this is going to depend on your organization. Do you have people dedicated to compliance or does it all fall on the license administrators or is there vendor management plus compliance? So these things are different for every company. But really understanding what’s the transferability, what are the limitations, what are the usage rights, what is installed versus what’s being used. Setting up that communication so first is the official communication to the vendor about what’s happened in that transaction but then it’s setting up those meetings to talk to them again about what do the renewals look like, what are my renegotiation options, making those agreements co-terminus. This is something that makes your life much easier if you can do that. And then of course doing an inventory and audit of what actually came over.

[8:11] So not all contracts are transferable. Hopefully during due diligence those things would have been looked at but again customers communicate that that may or may not have happened. But understanding there may be some contracts that are not transferable and then you have to deal with those differently. What do the vendors require for that communication, that change of control provision? Are there any assignment restrictions? What are those usage rights? You may have the exact same applications but they’re licensed in a completely different way. So again in that example maybe it’s a larger company acquiring a smaller entity or a smaller group or division and it could be completely different in terms of what’s going on. And so being able to dig into that and understand all of those restrictions and usage rights is key. Is it subscription, is it perpetual, what’s the maintenance and support look like?

[9:20] I’ll tell you one thing that also gets skipped is in that matrix if you have true up dates or contractual expiration dates, the other thing that’s very important that you look at is termination clauses. So many contracts especially in the engineering space, the particular vendors they have notification requirements. So in order to terminate or to reduce the contract value of those clauses, some of them require 60 days, some 90, I’ve seen some that are 180 days. So if you’re not capturing that in your matrix you could blow by that notification date and then not be able to do something for a full year. So this is why creating those matrices and understanding what’s going on not just at the expiration date but what does the termination look like, or even a change in license position. Typically of course you can always add, it’s where we’re trying to reduce and optimize those licenses and get into a better license position where those dates come into play. Of course looking at governing law and data security is key as well.

[10:37] So in a divestiture if you are the company that’s divesting, it’s kind of the reverse right. You’re responsible for identifying which applications are transferable, what licenses are to be transferred. Again you may or may not be included in that front end piece of it, maybe you’ve just sent a spreadsheet or a report out of your software asset management tool. But if you have usage data that is key because now you can go to those folks that are doing that and say here’s exactly what’s being used by the people and the group or division or department that is being sold off, here’s what we own. And I’ll show you some examples of that. But being able to have that visibility, a lot of folks are coming into this and they say oh I’m in good shape, I’ve got my software asset management tool, it tells me what contracts I have and the expiration date. But hopefully what I’m showing you here is that you need usage data, you need that additional detail that may or may not be in your SAM tool to understand again is it transferable, what are those clauses, what are those termination dates or those notification dates that come in, and what’s the benefit of keeping the applications or the software versus transferring those licenses.

[12:13] So let me give you just a couple of report examples and these are very basic high level. The first scenario is just a company sold off one of its smaller divisions including all their assets. So they needed to identify what was being used, validate counts, etc. Now this is just an example for a single vendor but what we’re looking at here, the software publisher is ANSYS and this is the combined total but we can see here there’s different divisions and they can see what the cost is. In other words this is what the cost of the application is versus the cost of usage. So in this scenario division 2 is being sold off and this makes it easy right, it’s about the same. And I’ll show you in another slide that the user counts and the max in use and those types of things are very similar.

[13:07] Because in the engineering space we know there’s so many different license entitlements, the days of everything being a nice perpetual concurrent are gone. So you have all these complexities that are going about. But let’s just talk for a minute, what if it was division three? What if this one was going? So here what we’re looking at is what their allocation was from a how many licenses they had purchased versus what they were actually using. So then it becomes a business decision: are you going to transfer all of this cost over, are you only going to transfer what they actually used? The company that’s buying, are they going to take that on, are they going to take on those inefficient licenses if you will? What does this piece look like? But in today’s example again it’s about the same, this one’s a pretty simple one, it’s a smaller division. You can look at it’s important to be able to have these data points to be able to look at what’s my cost by group by division and even breaking that cost down by application. All of these types of metrics are available and a huge benefit when you’re in this merger, acquisition, divestiture type of environment so that you can more quickly and easily provide this information to the folks that are involved.

[14:44] You can drill down even further with this with a usage metering tool and look at how many distinct users do we have and compare that to how many licenses they share. So here it’s nice right, on this particular portfolio again we’re just looking at one example to just give you an idea. So the number of licenses, the max being used, is the same as the number of people that are in that group or division in this particular case. But if we contrast that with the others you’ll see that the distinct user counts are different. And so again you typically in a shared concurrent license you’re going to have a larger distinct user count than you do licenses. But just being able to visually see this and quickly be able to report on it and then again look at what is that per application, because you can’t just look at the portfolio level. We want to take that as a high level but we want to be able to drill down into that and again looking at max in use, lapse time, etc. So hopefully you can see the benefits of that.

[15:57] Here’s another one where there was an acquisition, so we’re going the opposite direction, but not all the software was included. And as you know if you’re responsible for this in your organization, some of your license entitlements and usage rights are tied to a physical location right. So now what do I do when I look at compliance, how am I going to be able to do that? Well if we’re able to meter that usage and the users and their locations right, then you can easily get some dashboards to be able to see what’s my compliance look like. So here we have the user location and the user IDs and the servers that they are using to check out those licenses. So we can see here that Joseph is checking out, he was physically located in Houston and he’s checking out licenses from LA. Now this, because you have licenses in Houston, is maybe an option file issue or an education issue depending upon if you have failovers etc. But understanding top to bottom you need so many different data points in that usage metering to be able to help you go through a merger, an acquisition or a divestiture so that you can more quickly be able to see what’s going on and to be able to answer those questions.

[17:26] And like I said the very very most common thing I hear is that the teams they’re not involved, they’re not involved in the due diligence. It’s only a very select number of people that are involved in that, and maybe they’re asked for a report but not even given context of what that’s for. And so being able to have a solution in place is really important. And even if you don’t have one today, this will help you in terms of building a business case inside your organization of why you need a solution to not only manage the day-to-day operation even without mergers and acquisitions and divestitures, to get a more effective license position, but if you’re in that acquiring mode especially, we have a lot of customers that they’re growing substantially and they’re growing through acquisition so it’s a very common occurrence. So depending upon your organization, but even without that to manage your whole portfolio around those engineering licenses it’s important.

[18:39] So we did high level but in conclusion metered usage data is key and that matrix is really really important to act as a checklist. It really helps you determine what’s urgent versus important. So you could have a small contract, because I’ve seen this happen too, you could have a smaller one, meaning it didn’t make your top 10, but it’s expiring and it’s got an evergreen clause and that evergreen clause is for another three years, it’s not just a year right. So you need to be able to quickly identify what you need to do first in terms of not missing any of these dates moving forward. And again this will provide a dashboard to help you monitor your progress, you can report up to the powers that be. Also key is to avoid any unnecessary new purchases. So if you’re in the acquiring mode you have your normal workflow to purchase additional licenses as requested through the end user up through the departments etc., that might be going on and it clears all the gates, but you’re acquiring what you acquired and you have excess licenses. So this is what I mean by avoid unnecessary purchases. And again the other example that I gave of an evergreen renewal clause that got invoked because you missed a notification date or you missed an expiration date.

[20:18] So I know that was quick this morning, it’s a very complex environment or situation for you to be in, but we’re just trying to help you understand the value of creating these matrices, using usage data along with complementing that with your contractual information to help you navigate these challenges in the merger, acquisition, divestiture. So at this point we’re going to open it up, we wanted to leave a few minutes to be able to have questions.

[20:49] Mae: Yes, thank you Linda for your very insightful presentation. We can now start the question and answer. Yes I do have some questions for you here.

[21:05] Linda: Great.

[21:05] Mae: Starting off with: how can Open iT assist in vendor negotiations post merger?

[21:12] Linda: That’s a great question. So we have a lot of different capabilities here. Some customers ask us to help in analyzing the data so they just don’t have the bandwidth, or maybe they acquired some vendors that they have not previously had experience with. And so we have professional and consulting services around doing a deep dive analysis to help you determine what the most effective license position is. And then also some customers even have us participate in those negotiations or those transfer discussions, that type of thing. So we have a lot of professional services and consulting around that, around analysis and really understanding contracts. We even have the ability to physically take the contracts and create that matrix for you. So great question. I’d say if you have any of those just give us a call and we can go into more detail about your specific situation or what’s going on in your environment.

[22:24] Mae: Thank you Linda. Here’s a second question: can Open iT report on purchased software that has not been unused in a divestiture, that hasn’t been used?

[22:47] Linda: Yeah, the answer is yes and that’s a really great point. So zero usage reports are very key in your day-to-day operations but especially in this environment. And again if it’s a divestiture someone else is making that decision but being able to report on that is key. And I’m going to add to that that you need the cost information as well. So when you’re looking at that zero usage report, is there a cost associated with it? Because there’s a lot of applications that come along or features that are in a portfolio when you purchase various different applications and you don’t need to worry about those. So if you have a list of a hundred applications or features that are not in use, maybe half of them don’t even have a cost associated with them, so you can just put those to the side and ignore them and then focus on those applications that have cost associated with it.

[23:52] Depending upon what type of licensing it is, depending upon several factors, maybe you take your license position down completely, although I’d say more common, again it depends on the type of licensing, but especially in perpetual you might take a keep one strategy, meaning okay we’ve used this at some point in the past, we may need it, we own it already so we can just keep a perpetual position and not necessarily pay maintenance, or pay maintenance just on that keep one strategy.

[24:33] Mae: Good question. And our third question here: what are the best practices Open iT recommends for software license compliance during an acquisition?

[24:43] Linda: So compliance is always a challenge, it’s a bigger challenge on some of the more standard business applications. But there are certain vendors, Autodesk for example, they’re probably the most well-known for audits. And so the best practice is if you’re divesting, are you currently in an audit, or have you even gotten any preliminary discussion? So sometimes vendors will verbally float that hey we want to come in and look at this. So all of that information is critical to be able to communicate to the folks that are involved in that divestiture making those decisions. If you’re coming in, meaning a merger or an acquisition, it’s one of the questions you should ask. It seems like it would be normal that they would tell you that but I’ll tell you that’s not the case. So one of the questions to the organization that’s coming in is ask them upfront, you need to know as soon as possible are there any audits coming in. Or you can ask about compliance but the audit one is the really big one because do you want to take on that risk? That should have happened through due diligence in my opinion but even if it didn’t, maybe in that timing window maybe it came through. So the best practice there is to literally ask specifically so that they have to disclose that information or that information is disclosed prior to the transaction being final, because you don’t want to take on risk unnecessarily for your organization.

[26:40] Mae: Any other questions? Yes Linda, I think we have one more here. Can you explain the importance of metered usage data in managing software licenses during mergers, acquisitions and divestitures?

[26:56] Linda: Well I think that’s kind of what we talked about for the whole thing today. If you only know what you’ve purchased that doesn’t really give you enough data points to be able to make a decision. Okay that’s the simplest easy level. You’re acquiring this company and they’re going to give you these applications that were purchased, but again are you taking on inefficiencies like that example I gave with the large division where they had a large expense in those applications but they weren’t really efficient, they weren’t really using very many of them. So looking at the usage information is critical to understand again what you want to divest or what’s coming in and what the impact, both the risk we talked about and the financial impact, is going to be. So with usage data, we just touched on a few points but there are so many, well it depends on what solution you’re using. For our solution I can talk about it, that’s what I know the best. Having more data points the better, you get a more well-rounded 360 view of what’s going on. So you’re not just looking at okay how many do I own and how many did I use, but how much lapse time did I use? Even if you own 100 licenses and used 100, how much was that 100 licenses used? So usage data is critical in our opinion. But there’s so many different benefits so if you don’t have a solution or you’re not happy with that I would just say contact us and we can go into more detail. Today was about bringing some visibility or some things to think about in how your organization’s handling it.

[28:48] Mae: Thank you so much Linda for sharing your expertise in answering those questions. Before we end this webinar, any parting words for our viewers?

[28:55] Linda: I would just say start early and don’t get bogged down. That’s going to be my parting words. Don’t get bogged down in filling in all the blanks, fill in everything you can and then go back and fill in the blanks.

[29:11] Mae: Thank you so much Linda, that was very enriching. And also thank you to all our attendees for joining our webinar today. A quick reminder again that this webinar is recorded and can be immediately replayed after this live stream but we will also upload it on our website. We have new blogs related to this webinar that you can read, particularly Mergers and Acquisitions: The Importance of License Server Consolidation. You may also check out our infographic on the IT Asset Management post-M&A: The 5S Method. We appreciate your attendance at this webinar. For any questions or inquiries you may send us an email at webinars@openit.com. Please visit our website at openit.com and follow Open iT, Inc. on social media. Connect with one of our solutions consultants and get started with your software optimization journey. Once again this is Mae your host for today. Thank you and stay safe. Thank you everybody.