Mergers and acquisitions are designed to benefit both organizations’ bottom line and create new efficiencies and opportunities for both sides of the relationship. But they are also a long and often difficult process for those who are trying to figure out the best way to combine the two groups.
One daunting task that is inevitably part of the merger and acquisition process is sorting out the software licensing for both companies and finding a way to consolidate them. Both companies will have a variety of software assets under license, with extensive overlap of software and functionality between them. There could also be multiple licensing models, meaning you’ll need to deal with not only what is licensed, but how it’s licensed.
The only clear thing, as you approach this problem, is that it’s going to be tricky.
What many don’t see, though, is the opportunity this process can represent for the new organization. Taking this chance to evaluate and optimize the software licensing estate across both of the organizations that are coming together can be a major benefit to the newly formed company.
It’s a rare chance to gain control of your software estate, and actually, increase the value of your software investment.
License optimization is an often overlooked part of the tenant-to-tenant migration that is part of almost every merger and acquisition process. But it has real benefits that make it worth spending time and effort on.
The first advantage is reducing your software spend. It’s not just about redundant licenses, either – though that is a great area for cost reduction. There are also opportunities to remove software from your environment. For example, do you now have two anti-virus software packages as part of your infrastructure? Eliminating that kind of software can have a surprisingly significant impact on your overall spend.
By combining the two organizations’ licensing, you’re also creating a better financial picture for the new company. Clarifying and improving your licensing increases the visibility and predictability in your budget, and enables better forecasting and resourcing than you’ll have with two separate or loosely combined organizations.
The right licensing also adds solid and sustainable governance, in both your software and cloud life cycle. It ensures higher compliance with your licensing requirements and reduces the risk of non-compliance in any licensing audits you undergo.
Yes, you can carry on by duct-taping the two organizations together and letting their licenses run the same way as before. But the benefits of a consolidated licensing model make it less of a chore, and more of an opportunity.
The M&A Inflection Point
That’s what the M&A inflection point really is: an opportunity. And you can’t start too soon. Because from the moment your two organizations combine, you’re losing money on duplicate or redundant licenses and software. The time to deal with – and improve on – the complexity of your licensing agreements is now.
You’re going to have multiple licensing models coming together, on both sides of the equation. The two companies might have one or more enterprise agreements, with different terms. Most large companies use a licensing services provider (LSP) to manage their enterprise licenses, too, so the relationships with any LSPs need to be considered.
Both groups probably have a significant part of their infrastructure on the cloud, too, so the Cloud Solutions Provider (CSP) for both companies needs to be considered. And there is a good chance that you are dealing with at least some on-premises infrastructure, such as Microsoft Exchange.
The real driver for getting it right is that you’re inevitably duplicating your software costs. Eliminating licensing redundancies is the strongest driver for working through your licensing consolidation. Every tick of the clock marks a loss, as you spend money unnecessarily. That’s why it’s so important to start now and get it right.
How to Get it Right
You’re not going to work through the combining of two organizations’ software licensing without a plan. No matter what benefits you might realize when you’re done, the problem is too complex to tackle without a plan. You’ll need a plan that confronts all the possible issues you’ll encounter in optimizing the new organization’s licensing.
It needs to address all of the two companies’ current licenses and find areas where you can save money and eliminate redundancy. It also needs to consider the company’s overall technology roadmap, and how a new licensing approach might affect it.
The plan also has to look forward and consider different possibilities for different renewal options in the licenses, over the next several years. And, it needs to put your new organization in a position of strength in negotiating its license agreements. It needs to help your organization move forward to this new, better future.
The Quisitive Approach
In its many years as a leading Cloud Solutions Provider, Quisitive has helped many organizations to work through the many aspects of tenant-to-tenant migrations. Software licensing is inevitably a major success factor for those migrations; that’s why Quisitive partners with Crayon, an organization with two decades of expertise in software asset management.
Together, Quisitive and Crayon have developed the Software Agreement Optimization framework and methodology to guide companies through this part of the tenant-to-tenant migration process. The Software Agreement Optimization includes a number of structured steps to manage this process:
- Assess the license position, highlighting your current compliance situation with recommendations for cost savings and avoidance
- Create a detailed software roadmap that outlines your technology roadmap and license consequences
- Analyze scenarios to compare total cost of ownership for different renewal options over a 3-to-6-year period, including pros and cons for each of the options presented
- Develop strategies and tactics that empower you to negotiate new licensing from a position of strength
- Create an implementation plan to adopt the new agreement structure, including benefits, terms and conditions, and limitations
The Software Agreement Optimization approach can have significant and long-term benefits to your company. Crayon has found that license optimization typically reduces licensing spend by as much as 20% for most companies, and Quisitive’s extensive experience with these migrations has seen similar success.
By taking a proven approach to consolidating your licenses, your new company can get through the license optimization process in a way that takes advantage of the opportunity that it can present.
A merger or acquisition is a time of great uncertainty, so it’s a time that requires a solid plan to get through it. You’re going to need, among many other things, to bring two software environments together, and make them work to your best advantage.
Software licensing can be easy to forget as you work through the many other issues that you’re facing. But the time is right to take a long look at your licensing profile and make the best choices for your newly combined company. The savings can be significant, and well worth the time you need to spend getting it right.
And to make sure your plan for license consolidation is as good as it can be, you might want to talk to an expert who has helped many companies achieve success.
Did you know that a merger, acquisition or divestiture can trigger a license audit from software publishers? Learn more about this and how to ensure your company is compliant with the Microsoft software running in your environment with this article from our partners at Crayon.