Most M & A transactions focus on the pace of the transaction, target operational and financial performance, and the competition caused by multiple potential buyers can spend the time and resources required to run the full technology. It will be difficult. Related due diligence. The challenge is that many lawyers who have dealt with M & A transactions for many years simply do not know or ask questions about the magnitude of the potential risks posed by the state of the technology environment and practices of the target company. The facts make it even more complicated.
Most large software licensors have launched a formal software audit program to identify non-compliance with these audit teams (as well as sales teams) to generate additional revenue from existing clients. This is especially problematic because you are assigning revenue targets. In some recent examples, software audits have identified non-compliance issues that lead to requests for additional charges in the 9-digit range. This can often exceed the overall value of the transaction, or at least significantly undermine expected revenue. About investment for acquisition.
Although not a complete list of potential risks arising from inadequate technology due diligence, we highlight below some of the key considerations presented by the evolving technology outlook that companies are currently doing business with. did. If you do not ask these questions and do not consider the risks involved, you may leave your company exposed to significant financial risks that are not priced on the transaction. Consider incorporating the following questions into your due diligence questionnaire to address the risks posed by the answers in your transaction documents.
1. Do you have an organized and active software license management compliance program? If so, please explain it.
Unfortunately, many companies do not have an active software license management compliance program and, as a result, do not comply with the terms of their software license qualifications or applicable software license agreements. This creates a number of compliance issues, including 1) more users than licensed users, 2) violations of usage restrictions, 3) attribution due to virtualization exceeding licensed usage, and 4) violations. There is a possibility. Non-transferable clause. In either case, this incurs significant additional charges and can affect the expected return on investment. If the answer to the above question is no, continue with caution and investigate further.
2. Do you use software license management tools to track the use of licensed third-party software and ensure that you comply with your licensed entitlements?
Software license management is important, but many companies have not yet invested in implementing license management tools. If your target is one of these companies, it is likely that they do not comply with the licensed entitlements or the terms of your software license agreement. In addition, it is very difficult to determine the size of potential exposure because the target has not effectively tracked the use of licensed software or remapped it to licensed entitlements to ensure compliance. Can be difficult.
3. Are you compliant with all third party software licenses?
If the answer to this question is yes, then you should consider including this answer as a representation in the transaction document. If the answer is no, you’ll want to dig deeper to assess your potential exposure.
a.Do you allowBot“How do I operate as a user of third-party software? If so, which third-party software will be operated by the bot user?”
If the answer to this question is yes, you should review the license agreement that controls the software program your bot uses to determine if this use is permitted and its impact on your licensing requirements. In many cases, the use of software by bots is comparable to many human users, and as a result, many licensors have to pay an additional license fee.
b. Have you moved your third-party software from your on-premises environment to a third party? “Cloud environment“? Are you using a dynamic virtualization program that allows software to harness its computing power in a cloud environment that exceeds the computing power available in your on-premises environment?”
If the answer to this question is yes, then you need to review the license agreement that manages the software programs that have been moved from your on-premises environment to your cloud environment to determine if the software in your cloud environment is accessing it. It is used in an on-premises environment and uses more processor or processing power than is licensed under the applicable software license agreement. The decision to move the software to a host environment and leverage dynamic virtualization software can result in actual or imputed usage (ie, full capacity license) that is thousands of times higher than traditional usage. As such, this is a particularly important exposure for many companies. Thousands of times the on-premises environment and customer license qualifications. As a result, the additional license fees required to support increased usage can be thousands of times higher than the license fees paid by the customer.
c. Did you integrate third-party software into your environment in such a way that your program would be “”?Indirect user“Other licensed software programs?
If the answer to this question is yes, then whether the integrated software requires additional license fees to be paid to the “indirect user” or each performed by the integrated software in response to a “call” from You need to decide whether to consider the transaction. An integrated program that configures the use of the software and requires payment of license fees. Indirect use of software, often through calls from other integrated software programs, can significantly increase software usage and incur significant additional license fees. As a context, a major software company requires payment of a license fee for “indirect use” of its software, and its license metrics capture “calls” from other programs that harness the processing power of the original software. Widely described to do.
4. Does this transaction result in the transfer of software licenses (including transfer by law) that violate the non-transferable provisions of the license agreement or the non-transferable provisions of the license grant?
Many software license agreements prohibit allocations and require you to pay an allocation fee in connection with the allocation of software from one entity to another. Under many state laws, a merger constitutes an operational transfer of law and violates a license agreement or a non-transferable provision of a license grant. Determining whether a merger constitutes an operational transfer of law is complex and depends on state law and the structure of the merger. For example, under Delaware law and state law according to the model company code, an inverted triangular merger is usually not considered an operational transfer, while a forward merger is considered an operational transfer. Therefore, it is important to consider the structure of the transaction, the governing law of the companies involved and the merger agreement, and the specific non-transferable provisions of the applicable license agreement when assessing this risk.
The information contained in this alert is for the general education and knowledge of our readers. It is not designed and should not be used as the sole source of information in analyzing and solving legal problems. It should also not be a substitute for legal advice that relies on specific fact-finding. In addition, the laws of each jurisdiction are different and constantly changing. This information is not intended to build a relationship between a lawyer and a client and does not constitute a receipt of that information. If you have specific questions regarding a particular factual situation, we recommend that you consult the author of this publication, a representative of Holland & Knight, or any other competent attorney.
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