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Mergers, Acquisitions and Divestitures: Why it pays to keep ITAM in mind

Mergers, acquisitions and divestitures are complex transactions that result in fundamental structural company change or transformation. There are many aspects to consider, from staffing and office space, to operations and finances – and, crucially, software and cloud contracts.

Ensuring that software licensing contracts are in order ahead of such significant deals, is an essential part of ensuring smooth IT operations in the future, avoiding unexpected costs, and mitigating any potential risks. As such, organizations need to fully understand their software and cloud landscapes, commercially and contractually. This is where IT Asset Management (ITAM) is key.

 

The pitfalls of not knowing your contract position

Understanding your current contract position and carrying out detailed due-diligence is vital for any successful company change or strategic transformation. But it can be far too easy, especially with the many other facets of a company’s overhaul, to consider postponing the due-diligence required to ensure a smooth transition. We’ve seen organizations try to rectify contractual problems too late in the process, and by not understanding how their organization’s licensing works, they have spiraled into costly and complicated issues, with escalating liabilities that do not bode well for the future.

It is also important to understand the risks that come with a merger or acquisition. Acquiring a company, for instance, could also mean inheriting a host of compliance risks and costs, resulting in potential valuation problems and even further liabilities.

By not fully understanding the ins and outs of your contract, you could also find it difficult to negotiate favorable terms with a vendor – even as part of a new company or as an independent entity, vendors will still have knowledge of your requirements, so it is important that you are on the same page.

Establishing a new contract sets the tone for all future contracts, dictating the discounts and terms that could have a positive (or negative) effect for years to come. It is crucial, then, to understand your software and cloud needs now to ensure the benefits continue into the future.

 

      Points to consider

  • Most vendors offer a specific (often short) window for companies to declare whether they have been through a merger, acquisition or divestiture. Oracle, for example, has a 60-day declaration period
  • When it comes to contractual discounts, keep an eye out for unit price increases, as upon being acquired, an organization may not keep its original discounts
  • Be aware of preferential buying regions – if two companies are coming together from different regions, check to see which offers the best deal on pricing
  • Understand your right to request a contractual amendment agreement or a contract re-negotiation
  • Keep in mind the Transfer of Service Agreement that gives companies permission to use software for a short transition period after being divested
  • With modern licensing now primarily cloud-based, remember that the rules around licensing ownership have changed.

 

An opportunity to start afresh

When managed correctly from an IT perspective, mergers, acquisitions and especially divestitures provide great opportunities for organizations to renegotiate a brand-new, more favorable software and cloud contract. These organizations can rationalize and optimize their licensing to create a more agile contract for future changes, such as another merger or acquisition.

They can also take advantage of a variety of discounts. Programmatic or earned discounts, for instance, or an increased discount if an acquisition has resulted in a greater number of users. Organizations can also use the opportunity of structural change to become more sophisticated in buying licenses. For example, if a divested company has a reduced number of requirements, it can look to develop its specific user persons and create a more tailored environment.

But it is key to remember that these benefits can only be achieved if contracts and licensing are properly understood and contract renewals and negotiations are planned well in advance.

 

Preparation is essential

While assessing contracts, it is crucial to consider the contractual intricacies for both parties in the transaction – is there an increase or decrease in users and license requirements? Is there a clause that takes ‘Future Affiliates’ into account? What is the exiting contractual agreement? – an exercise that can take a substantial amount of time. This will also need to be completed for each vendor, each with different contractual terms. Preparation is therefore essential.

As for any aspect of SAM, planning ahead is key to a successful outcome. Only when contracts as well as software and cloud estates have been thoroughly analyzed can licensing and compliance risks be understood, potential for optimization and growth be captured, and an optimal negotiation strategy be achieved.

By preparing as far ahead of schedule as possible, organizations will be prepared to handle any unexpected findings and be able to come through the other side of a merger, acquisition or divestiture with a futureproofed and optimized contract.

 

Support through a challenging period

Enlisting help from a third party such as Livingstone can provide invaluable advice and experience to help you navigate the intricacies of software and cloud contracts. During a liquidation, we can help organizations reshape requirements and reduce risks, and for newly divested companies we can help to negotiate your first independent contract, establishing a benchmark for the future. Similarly, if an organization is going through a breakup, Livingstone can help mediate between different entities to ensure all parties achieve their goals.

We know that the prospect of combing through every little detail of a contract can be an overwhelming prospect. We have extensive experience in supporting clients through the Merger, Acquisition & Divestment process; minimizing risk and optimizing our clients post transaction technical, commercial and contractual positions.

With teams of experts across mega vendors and publishers, we can help optimize and agree on a realistic and necessary Bill of Materials and use our expert industry knowledge to secure vendor discounts. We can help to plan and negotiate your contracts, and ensure you know the specific details, terms and risks to ensure you achieve an optimal outcome – whatever the structural company change.

 

For more information, contact a member of our team.

 

 

ABOUT THE AUTHORS

Chris Gough, Chief Strategy Officer

Chris has worked in the IT Industry for over 20 years, starting as a consultant he then took on more senior practice management roles, focusing on networking, security, data centre and unified communications and in recent years specialising in data centre optimisation and particularly in software licensing. Having worked with large enterprise organisations, Chris understands the challenges faced in data centre licensing and the lack of expertise in the marketplace.

Having founded the Derive Logic business until its acquisition by the Carlyle Group in April 2019, Chris is now on the senior executive board for the world’s largest independent IT Transformation Assurance and Software/Cloud Risk Management business, Livingstone Group.

 

Gareth Redshaw, Director for SME, Cloud & Strategic Partners 

Gareth joined our team through the acquisition of Cloud Optics, who are now a company in the Livingstone Group.. With over 15 years’ experience in software licencing Gareth has helped clients optimise spend, develop their future strategy and taken control of high-profile vendor negotiations; this includes one of the largest UK Government contracts.

Having successfully managed UK wide government EWA contracts from 2009-2011, more recently Gareth developed a proven methodology for cost optimisation.  He has implemented this across EMEA wide clients and delivered substantial savings. Gareth developed and grew the largest LSP’s practice for Microsoft government SME consulting and Cloud Commercial Optimisation.  In addition to this he was responsible for this same LSP’s Licence Consulting UK, Ireland & Nordics.

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