The Role of IT and Software Asset Management in Mergers and Acquisitions

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Matt Fisher, Chief Storyteller, Certero

Why you should never buy an organization that doesn’t have a SAM program

2019 saw an all-time high for the number of mergers and acquisitions around the world, whether that’s industry giants coming together, market leaders snapping up start-ups and disruptors or multinationals expanding into new territories or segments. If you believe the research, 2020 will see even more Mergers and Acquisitions activity.

What the vast majority of successful mergers and acquisitions have in common is a fanatical focus on due diligence. It makes sense that acquiring organizations want to know exactly what they’re buying – the good (assets) and the bad (liabilities).

It is perhaps surprising then how often there is little attention paid to the state of both the acquirer’s and the target’s IT estates, especially the deployed hardware, software consumption and license entitlements.

Why the state of the acquirer’s IT infrastructure & Effective Licensing Position for key vendors matters

Aside from acquiring new staff and customers, expanding operations into new sectors or territories and perhaps adding valuable IP to the organization, most acquiring organizations will want to realize economies of scale and rationalize costs as part of a deal.

That might mean consolidating functions from the two organizations, such as with HR and finance. It might mean combining regional offices. It might mean rationalizing vendor contracts, and it will likely include looking to save money on IT costs and operations.

In reality, all of the above drivers have impacts on IT costs and operations. But if you don’t know what your own current costs are, where your assets are, how old they are and what software is running on them, you can’t possibly plan with confidence.

As such, part of the acquiring company’s planning has to be to fully understand its own IT estate as it stands pre-transaction. Only then can you establish if you’re ready to integrate or absorb the target organization and its IT environment into your own. For example, you need to know:

1. What assets you have deployed and what are they running – will operating systems, applications, virtualization technologies, databases and user management software be compatible across the new organization on day one, or will you need significant planning to align and merge?
2. What are your key software contracts and what is the status of them – can you easily add new users to existing contracts or expand usage of mission critical systems into new environments and geographies, or will this require renegotiation with the vendor(s)?
3. What are your current key software licensing risks – Mergers and Acquisitions activity is often closely watched by software vendors and audits are commonplace either during or shortly after acquisitions.

This is basic SAM 101, but it becomes especially important during times of organizational change (see our section below on vendor audits!).

Why effective Software Asset Management matters when acquiring a target company

Your due diligence should highlight the target organization’s known assets and liabilities. But if that organization doesn’t have effective Software Asset Management technologies and practices in place, then the chance of unknown risks escalates considerably.

Without a true understanding of the target organization’s current hardware and software consumption, how can you know whether or not:

1. The IT assets you’re buying are fit for purpose or will need expensive upgrades within months of the deal?
2. The target organization has a sizeable undocumented software compliance risk with one or more vendors (maybe they stopped spending on new licenses to make that balance sheet look a little better, maybe they’re misusing freemium versions, maybe they have development licenses in production environments)?
3. The software contracts in place at the target company can continue to be used after the acquisition (are they bound to a legal entity that will no longer exist, or a location that prevents wider geographic use)?

Why Mergers & Acquisitions & software audits go hand in hand

It is perhaps unfair to draw analogies of sharks circling, but the fact is that software vendors have teams that keep a close eye on Mergers and Acquisitions activity because they’ve proven over many years that it’s good hunting ground. There is an inevitable period of flux (if not outright chaos) during and after an Mergers and Acquisitions that breeds confusion and risk.

The auditors know that software licensing is often not included in due diligence. They know the target company is more likely to have compliance issues. They’ll know that the acquiring company may have entitlement restrictions they are about to unwittingly break.

It’s just the sort of environment a seasoned auditor will know how to turn to their advantage. If you’re not in complete control, your Mergers and Acquisitions activity could get a whole lot more expensive.

What to do when there’s no SAM program in place

If you’re the acquiring organization and you don’t have Software Asset Management in place, then now is the time to get started. After all, you’re about to be bigger, more complex, more diversified than ever. And that’s a recipe for total loss of IT control.

If your acquisition target doesn’t have SAM in place (but you do), then one option might be to extend your own SAM practices to the target organization for a defined period of time as part of the due diligence process.

That may, or may not, be acceptable to the organization you’re looking to acquire.

If not (and if you don’t have the staff or technologies to extend your SAM program outside your own network, this might be the better route anyway), the alternative is to establish an acquisition-specific SAM program at the target organization, run by an independent SAM technology and services provider.

As a quick guide, this SAM program should help you understand:

1. What assets are deployed across the target organization – include all laptops, desktops and servers as a minimum
2. What software is being consumed by employees – check that software is up-to-date and doesn’t present security risks
3. Is the software correctly licensed – reconcile software usage against contracts and entitlements
4. What are the main risks / expected costs – whether due to refreshes, required upgrades or potential software compliance shortfalls
5. What are the main opportunities – what software contracts can be leveraged to help rationalize costs in a merged organization, which ones should be cancelled / not renewed and which vendors should be approached with a view to renegotiation for a single larger contract.

When you don’t do SAM during Mergers & Acquisitions, things go wrong

It might sound overly-dramatic, but I’ve seen acquisitions cancelled at the eleventh hour because the acquiring company discovered concerns about IT Asset Management practices at the target organization. I’ve also seen CIOs lose their jobs because of unexpected costs (often in the form of ‘surprise’ software audits) in the immediate aftermath of an acquisition.

There’s good reason why so much due diligence goes into an acquisition. Your target’s (and your own) use of technology should absolutely be part of that.

If you’re in Mergers and Acquisitions mode, but lacking the SAM skills to be confident you’re not buying a huge risk, speak to our team about a full or partial SAM Managed Service or learn more about Certero for Enterprise SAM.