This year has already proved to be a year of M&A activity, and those companies that don’t have a grip on software asset management (SAM) in a merger face exposure to financial and compliance risks.
A mature SAM programme is crucial for optimised IT spend management and on-going licence compliance, and needs to be assessed during the M&A process.
Businesses should be aware of potential software licence liabilities they may be taking on, and understand the value of software as an asset. Software publishers are known to target companies undergoing mergers and acquisitions for audits because they know that these businesses are at high risk of being out of compliance.
Mergers provide vendors with opportunities for increased revenue. Businesses must scrutinise the licence position of the acquisition target and understand the licence implications for the merged entity.
Key considerations for assessing software financial and compliance risks in a potential merger or acquisition include:
Software purchased – centrally, by business unit, division, or department When all software is purchased centrally for the entire enterprise, licences are more likely to be tracked accurately.
The further down the organisational hierarchy that software purchases are allowed, the more difficult it is to track and reconcile licence entitlement with installations and usage. De-centralised procurement also means it‘s more likely that the enterprise is over or under-licenced and is not maximising volume discount opportunities.
Processes to track software installations and usage How is an inventory of installed software performed – manually by random sampling, enterprise-wide by automated inventory gathering, or somewhere in between? Is it centrally managed or left to individual business units, divisions or departments?
Is inventory checking a once-a-year chore, is it updated quarterly, or is it continuously collected and updated? Is sufficient data collected to confirm compliance with all of the different licence types purchased, such as per-device licences, named-user licences or concurrent use licences?
The ideal situation is a centrally administered, automated, continuous, enterprise-wide software inventory collection and asset recognition process. The benefits of an automated approach include increased operational efficiency and a reduction in manual labour for IT asset management.
The further from that ideal in any of the dimensions of frequency, breadth or automation, the less likely it is that the company has an accurate record of installed software.
The ability to collect application usage data is also a critical part of a mature SAM process, allowing licence re-harvesting and re-use to defer new purchases, and a reduction in on-going maintenance renewal costs.
Records of software licence purchases
Knowing what software is installed is the first step. To assure licence compliance and an optimised software procurement process, a company also needs an accurate record of all licences purchased, including usage rights and restrictions of each. Does the company maintain central records of all licences?
Do the records include all the different rights and restrictions in a normalised form to facilitate compliance checks? Are licence terms and conditions communicated by procurement to the IT operations department? All of these are important for understanding a company’s licence entitlement.
Reconciliation of software installations to software purchases? Licence reconciliation is a matter of comparing software installed to licences purchased. But software licencing takes many forms and it is rarely that simple. Is there a process in place for accurately assessing whether the software installations and usage are in full compliance with licence entitlements?
If product usage rights are not taken into consideration, it‘s likely that the organisation is either over-licenced or out of compliance. If over-licenced, it‘s important to assess whether any of the excess licences can be transfered to the acquiring company.
Application of licence transfer rights and restrictions For critical and high-value software applications, determine what licence and maintenance transfer rules apply to the M&A situation.
For volume licenced products, Microsoft Software Assurance (SA) may not be transferred to another entity in many cases. Furthermore, only the latest version of a product purchased with SA may be transferred, with Microsoft approval, for perpetual volume licenced products.
Identification of software audit triggers A licence audit by a software vendor can tie up IT resources for many months, and result in significant financial penalties.
The merger or acquisition itself is one factor that could put the company on vendors‘ radar as a potential audit candidate. Other factors that can increase the probability of an audit include substantial employment growth in recent years, significant layoffs, and recent termination of, or reductions in maintenance services
A mature SAM process can save money, ease integration and ensure licence compliance during a very complex time.
Patrick Gunn is Vice President for EMEA Sales, ManageSoft