How to Audit SAP Licenses Before a Merger or Acquisition

How to Audit SAP Licenses Before a Merger or Acquisition

Meta Description: A pre-M&A SAP license audit is the first defense against compliance risks and unexpected costs. This guide shows IT leaders how to review entitlements, validate coverage, and spot gaps before SAP does.

Every merger or acquisition (M&A) brings significant changes – and your SAP licensing is no exception. Conducting an SAP license audit before a merger is a strategic necessity to prevent compliance issues and unexpected costs. Read our guide for a full overview of all SAP Licensing & Mergers and Acquisitions risks.

This guide explains how to audit SAP contracts in M&A contexts as part of your broader SAP licensing due diligence in 2025. By performing a thorough SAP pre-merger compliance check, IT leaders and procurement teams can ensure SAP contract compliance during mergers and acquisitions, avoiding last-minute scrambles and gaining leverage in negotiations with SAP.

Why a Pre-M&A SAP License Audit Matters

Before an acquisition is finalized, it’s crucial to understand why auditing SAP licenses in advance is so important.

Here are the key reasons a pre-merger SAP license audit matters:

• SAP leverages M&A to drive audits and revenue growth. SAP often views mergers and acquisitions as opportunities to initiate compliance audits and drive additional license sales. They know organizational changes can inadvertently create licensing gaps, which SAP might then use to drive new revenue.
• Catch compliance risks before SAP does. By auditing internally, you can find and fix compliance issues before SAP’s auditors show up. This proactive approach means you won’t be blindsided by violations that could result in penalties or rushed, expensive purchases.
• Audit = foundation for compliance and cost control. A thorough audit lays the groundwork for both compliance and cost management in an M&A. Armed with a documented baseline of your entitlements and usage, you can craft a strong negotiation strategy – resisting inflated relicensing demands and pushing for better terms for the combined company.

Step 1 — Identify SAP License Entitlements

The first step is to obtain a clear understanding of the SAP licenses you own and how they’re being utilized. In other words, perform an SAP license entitlement review across the organizations involved.

Key actions in this step:

• Gather contracts and entitlements: Collect all SAP license agreements, purchase records, and entitlement documents from both companies. Know exactly how many of each license type you have, what products or user types they cover, and any special terms in the contracts.
• Map licenses to actual usage: Compare your entitlements to current usage. Check SAP user lists and system reports to determine the number of active users (by license type) versus the number of licenses purchased. Repeat this process for any SAP package or engine metrics (if applicable). Note where you have more licenses than are actually in use (surplus shelfware) and where usage exceeds your licensed counts (shortfalls).
• Example: In one pre-merger audit, a company discovered 500 unused Professional User licenses (worth approximately €2 million) that were sitting idle. At the same time, they noticed their SAP CRM module had more active users than they had licenses for, indicating an under-licensing issue. This discovery highlighted both a cost-saving opportunity (shelfware that could be reallocated or retired) and a compliance gap that needed to be addressed before merging the businesses.

Establishing this baseline license inventory and usage profile is crucial. It tells you exactly where you stand before the merger, so you can pinpoint problem areas and address them in the next steps.

Step 2 — Validate Affiliate and Subsidiary Coverage

Mergers often introduce new legal entities, so the second step is to ensure that all affiliates and subsidiaries are properly covered under your SAP agreements. SAP contracts are typically tied to a specific legal entity (the licensed “Customer”) and its defined affiliates, which may or may not automatically include newly acquired companies.

To avoid unpleasant surprises:

• Review contract definitions: Read your SAP contracts to see how they define the customer and any “affiliate” usage rights. Understand what qualifies as an affiliate (often a majority-owned subsidiary) and whether the contract requires notifying SAP or getting consent when you acquire a new entity.
• Confirm coverage for the new entity: Determine if your existing SAP license scope covers the company you’re acquiring (or merging with). If you plan to integrate their users into your SAP system, does your contract allow it? If the acquired business has its own SAP licenses, consider how you will handle two sets of contracts. Identify any gaps – for example, if the new subsidiary isn’t explicitly included in your contract’s affiliate clause, that needs to be addressed with SAP.
• Risk: Any affiliate or entity using SAP without explicit authorization will be considered unauthorized usage by SAP. This can trigger a demand that you purchase new licenses for that entity, often at a high price. Catching this risk early allows you to negotiate with SAP to include the new affiliate under your agreement (ideally at no or minimal cost) before the merger is completed and before SAP audits you.

Validating affiliate coverage ensures that after the merger, every part of the business using SAP is legally entitled to do so. It’s a critical part of SAP licensing due diligence – essentially checking that the newly merged company won’t inadvertently violate any license terms.

Step 3 — Assess Indirect/Digital Access Risks

Another major area to examine is indirect access – cases where third-party systems or applications interact with your SAP data and could require their licensing.

During a merger, new integrations might be set up and existing ones expanded, so evaluate this carefully:

• Inventory external integrations: List all non-SAP systems that interface with SAP in both companies (CRM software, web portals, e-commerce sites, HR or payroll systems, data warehouses, middleware, etc.). Note what each integration does – for example, creating sales orders in SAP, reading or updating customer records, syncing employee data, and so on.
• Gauge indirect usage volume: For each integration, estimate the volume of data or the number of transactions it sends to SAP. High-volume interactions (e.g., thousands of web orders flowing into SAP) are potential red flags for indirect usage fees. Check whether your current license agreement covers these scenarios. If you haven’t adopted SAP’s digital access model, some of these activities might technically be unlicensed.
• Example: In one audit, a company discovered that its external HR system was feeding payroll entries into SAP, creating records without any corresponding SAP user license. This unintentional indirect access would have been a major compliance violation if left unaddressed. By catching it during the pre-merger audit, the company arranged the appropriate digital access licenses (and even negotiated a cap on those fees) before SAP could ever flag it.

Scrutinizing indirect usage is vital because these “hidden” uses of SAP can lead to significant license exposure. By identifying integrations and their scope now, you can plan solutions as part of the merger – rather than getting hit with an unexpected bill later.

Step 4 — Spot Gaps and Over-Licensing

With all the data collected, the next step is to analyze where you are under-licensed, over-licensed, or mislicensed. In short, find any compliance gaps and any inefficiencies in your SAP licensing:

• Identify unused licenses (shelfware): Pinpoint licenses that have been purchased but aren’t actively used. These might be spare user licenses not assigned to anyone or unused SAP modules. Shelfware represents wasted spend – but it’s also a buffer you might utilize to cover new users coming in through the merger.
• Identify under-licensing or misalignment: Find areas where usage exceeds entitlements or where users have the wrong type of license. For example, you might discover a department using SAP with only “Basic” user licenses when their activities require “Professional” licenses (a compliance gap). Conversely, you might have people with expensive licenses who only perform simple tasks (an overkill scenario). Correcting these issues will reduce audit risk and optimize costs.
• Example: A pre-M&A audit at one company revealed that they had 15% more Professional User licenses than needed (an excess that could potentially be cut or repurposed). In contrast, their finance team had several users working without the proper license type (a clear under-licensing problem). With this insight, they reallocated the surplus licenses to where they were needed. They purchased a few additional licenses to ensure the finance users were fully covered, closing the compliance gap before the merger.

Common findings from internal audits and how to address them are summarized below:

By spotting these gaps and surpluses internally, you turn unknown risks into manageable issues. Some problems can be fixed immediately (like reassigning unused licenses or buying a few missing licenses to cover a shortfall), while others become negotiation points with SAP. Either way, you won’t be caught off guard – you know where your trouble areas are.

Step 5 — Use Audit Findings in Negotiation

The final step is to leverage your audit results when dealing with SAP, especially if you need to adjust contracts due to the merger.

Treat your internal audit as a playbook for engaging SAP on your terms:

• Present a clear license position: When you inform SAP about the merger, come prepared with documentation of your combined license inventory and usage. Showing that you know your exact entitlements and current usage leaves little room for SAP to overstate your needs or “discover” issues. It puts you in control of the narrative.
• Negotiate continuity and coverage: Use your findings to negotiate contract terms that ensure a smooth transition through the M&A process. For instance, if you find an affiliate coverage gap, add the new entity to your license agreement upfront (with no extra cost, if possible). Ensure that all existing licenses and pricing remain valid post-merger (continuity of usage) so that SAP can’t force a relicense due to a technical change in the legal entity.
• Resist inflated relicensing demands: If SAP’s team suggests you need to buy a huge package of new licenses because of the merger, counter with your audit data. Show them, for example, that you have 2,000 spare licenses to cover many new users, and quantify any truly needed additions. Backing your stance with hard evidence will help deflate SAP’s initial high demand and enable you to negotiate a more reasonable outcome.

In short, this proactive approach lets you set the terms rather than simply reacting to SAP’s audit. Companies that come to the table armed with data tend to secure better terms and avoid overspending.

Example Scenario — Pre-M&A SAP Audit Saves €6M

To see how this all comes together, consider an example of a company that audited its SAP licenses before an acquisition:

Simulated case:

• Enterprise conducted an SAP license audit well before a major acquisition was finalized.
• Found 2,000 shelfware (unused) licenses and an affiliate coverage gap in the existing contract.
• Negotiated contract continuity and an affiliate inclusion clause upfront with SAP.
• SAP subsequently dropped a proposed €6 million relicensing demand after the deal.

This scenario shows the payoff of a proactive audit and negotiation. Instead of facing a multimillion-euro compliance surprise post-merger, the company saved money and ensured a smooth transition by handling these issues in advance.

SAP License Audit Checklist for M&A

For quick reference, here’s an SAP M&A audit checklist to use when preparing for a merger or acquisition.

It covers the essential steps and considerations:

☐ Collect all SAP contracts, purchase records, and entitlements.
☐ Map current license usage to actual users and roles.
☐ Validate affiliate and subsidiary coverage under existing contracts.
☐ Identify indirect/digital access integrations (third-party systems touching SAP).
☐ Flag over- and under-licensing issues (surpluses or gaps).
☐ Build a negotiation playbook using the audit results.

By completing each of these tasks, you’ll be well-prepared to integrate the companies without stepping on a licensing landmine.

5 Recommendations for IT & Procurement Leaders

Here are five key recommendations to make SAP licensing due diligence a success in any M&A scenario:

1. Make SAP license audits a mandatory step prior to M&A.
2. Validate affiliate coverage before signing acquisition terms.
3. Spot indirect access risks from system integrations early.
4. Use audits to reduce shelfware and over-licensing waste.
5. Enter negotiations with a verified, documented license position.

Following these practices ensures that your team stays in control of the SAP licensing situation, rather than reacting to it after the fact. Proactivity can save millions and prevent compliance nightmares.

FAQ

Why does SAP push audits during mergers and acquisitions?

SAP recognizes that during M&A events, companies may inadvertently breach license compliance. They often initiate audits at these times to detect any unauthorized use and capitalize on the situation by selling additional licenses or upgrades. In short, SAP leverages the disruption of a merger to ensure compliance and drive new revenue.

How can IT leaders identify affiliate coverage gaps?

Start by reviewing the language in your SAP license agreement regarding affiliates and authorized usage. Then list all entities that will be using SAP after the merger and check if each one is covered under the contract’s definitions (typically, majority-owned affiliates of the main licensee). Any entity not included is a coverage gap – meaning you’ll need to get that entity added to your SAP agreement through negotiation.

What’s the biggest hidden risk in SAP pre-M&A audits?

Indirect access is often the biggest hidden risk. That’s when other systems or applications utilize SAP data or functions behind the scenes without requiring direct SAP logins, potentially incurring additional license fees. These indirect usage scenarios are easy to overlook but can lead to huge compliance issues if not addressed. It’s critical to identify them in your audit so you can license them properly (or mitigate usage) before SAP flags the issue.

Can shelfware be reclaimed during a merger?

Yes. If one part of the merged company has unused SAP licenses (shelfware), you can often reassign those to new users in the other part of the business instead of buying duplicate licenses. Just make sure to get SAP’s approval if required, since licenses are tied to legal entities. Reclaiming shelfware lets you get value from licenses you already paid for. Identifying shelfware means you could drop maintenance on unused licenses or use their value as a bargaining chip with SAP.

How do audit findings strengthen negotiation leverage?

Audit findings give you concrete data – a clear picture of what you have and what you need. Armed with that, you can push back on any of SAP’s claims with facts. For example, if SAP indicates that you require a thousand new licenses, you can present data showing that you only need a few hundred (and that you have unused licenses to cover many of those). In negotiations, this level of insight shifts the power to you: you’re not guessing or taking SAP’s word for it, you’re presenting evidence. That typically leads to more reasonable terms and can prevent overspending.

Would you like to learn more about how we can support your organization with SAP during mergers and acquisitions?

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