Don't Overpay for that Acquisition
The CEO of a large, privately-held Managed Service company once said to me, “You don’t build SaaS hosting companies to pass on to your kids.” It was a bit tongue-in-cheek, but the point was clear. Most entrepreneurs build hosting or managed service businesses with the goal of one day being acquired. And for years now, that’s what has been going on: tons of mergers and acquisitions in the hosting space. Not just the traditional managed service companies, but ISVs as well. According to this article, there were 44 acquisitions in 2017 in the Digital Health Care space alone.
What we see over and over is the acquiring companies don’t practice proper due diligence in the one key area...software licensing. They review the financials closely, but they don’t verify the software licensing position of the company they were acquiring.
We have seen time and time again where an acquisition occurs, they take on the Microsoft licensing reporting, and then they get audited by Microsoft. Gaps are identified and the acquiring company is now left footing a large bill that was caused by a business model they just acquired. Not only did they over pay for the acquisition because they didn't account for the non compliant licensing costs, but now paying for non-compliance for years prior when they business wasn't even in their control.
Companies spend tons on lawyers to facilitate mergers and acquisitions, but they often don’t require a licensing baseline review as part of the deal.
Here’s 5 things to look for when acquiring another company:
Does the company being acquired have a SPLA agreement? If they don’t, they are still liable for all license costs and penalties for the entire time the Microsoft software was deployed. This means you are now liable if you don't perform your due diligence.
When was the last time they were audited by Microsoft? If it’s been more than a year, we recommend a baseline review.
How is SPLA usage collected and reported? If the only method is an output of a billing system, that’s a huge red flag.
Does the company being acquired have someone who’s an expert in SPLA licensing? Did you know that it’s a requirement of the SPLA agreement itself (fine print 😊 ).
Does the company being acquired have strict IT processes for software provisioning? Watch out for skunk work projects and IT projects that fly under the radar.
Before you get into negotiations, perform that due diligence on the critical area that drives your profit margin, the software costs. At Altaris Cloud, we deliver a complete analysis on your new hosted environment(s). Not only what the true cost of ownership is in the future, but potential liability for past use. Our reports can be used as leverage in the negotiating process to drive a real value based on revenue but also real costs associated with running Microsoft software.
If your company is thinking about merging with another company or making an acquisition, Book your free consultation and talk with the SPLA licensing experts. We will make sure you are in the best position to negotiate.
As Always,
Be SPLAWESOME!