Why Licensing Never Makes the Due Diligence Checklist
Before close, a licensing gap is leverage. After close, it’s a liability. Same finding, same dollar amount, completely different outcome. The only variable is timing.
I’m Paul Lindberg, president of Altaris Cloud. I’ve spent 17 years in Microsoft licensing and compliance, and I’ve personally run more than 600 audits. Our team has collectively performed over a thousand audits and settlement negotiations during our time at Microsoft, both as full-time employees and as contractors. For most of my career, I was the person who showed up after the deal closed, counted what a company was actually running, and handed them the number.
This is the first video in a six-part series on Microsoft licensing risk in mergers and acquisitions. In this one, I want to explain why that number exists in the first place, and why it almost never surfaces during diligence.
Diligence Is Mature. Licensing Falls Through the Cracks Anyway.
M&A due diligence is a mature discipline. Financial diligence is rigorous. Legal diligence is rigorous. Quality of earnings, working capital, customer concentration, employment agreements, intellectual property ownership, environmental exposure — all of it gets checked by someone whose specific job is to check it.
Software licensing sits in a gap between three work streams, and it belongs to none of them.
Financial diligence looks at what the target pays. They see the invoices. They see the renewal schedule. They confirm the expense is booked correctly, and they move on. That tells you what the target is buying. It tells you nothing about what the target is using.
Legal diligence reads the agreement. They confirm it exists. They check the term. And if they’re sharp, they look for change of control language. What they don’t do — and honestly, what they can’t do — is walk into the data center and count how many processor cores are running SQL Server Enterprise. That’s not a legal question. It’s a technical reconciliation.
IT diligence, when there is one, is usually scoped around integration. Can these two environments merge? What’s the technical debt? Is the infrastructure stable? It almost never includes a license entitlement reconciliation, because the people running IT diligence are infrastructure people, not licensing specialists.
So you have three teams, all of them competent, all of them looking at part of the picture, and none of them reconciling what is deployed against what is licensed. That’s the gap. And it’s a real one, because software is the only asset class I know of where a company can be paying for something, using it, in complete good faith — and still be out of compliance by a seven-figure margin.
This Isn’t Fraud. It’s Entropy.
Let me be clear about something, because I don’t want to overstate this. Most of the companies we assess are not doing anything wrong on purpose. Licensing is genuinely complicated. Product terms change. Environments grow organically. Somebody spins up a virtual machine one year, and nobody ever goes back to reconcile it. A company gets acquired, gets absorbed, and inherits an environment nobody fully documented.
That’s not fraud. That’s entropy. But entropy still produces a number. And when that number surfaces after close, it’s your client’s number.
In the next video, I explain why this functions as debt your client acquires without ever negotiating it. If there’s Microsoft licensing anywhere in your deal, call before you close.
