SAP Licensing Contracts for Mergers and Acquisitions
Mergers, acquisitions, and divestitures present complex challenges for organizations using on-premise SAP systems. SAP licensing contracts are not automatically transferable, and failure to plan can result in non-compliance, duplicated costs, or costly renegotiations.
IT leaders must proactively address novation, license transfers, and post-M&A license consolidation to optimize cost and ensure contractual alignment with SAP.
SAP’s Position on M&A Licensing Events
SAP treats M&A events as material changes in license ownership.
Most on-premise SAP contracts include clauses restricting assignment or transfer without SAP’s prior written consent. These include:
- Assignment clauses that prevent transferring a contract to another legal entity during a merger or acquisition.
- Novation requirements, meaning a new contract must be executed with the acquiring or divesting entity.
- Restricted reuse of licenses in carve-out situations — spun-off entities often cannot retain SAP software rights unless specifically granted.
SAP typically sees M&A as a commercial opportunity, not just a technical event.
This means any license transfer or reassignment will often require renegotiation, and SAP may push for:
- New license purchases
- Updated maintenance terms
- Migration to S/4HANA or cloud offerings
Understanding these tactics — and your contractual rights — is essential.
Common M&A Scenarios and Licensing Implications
| Scenario | Licensing Consideration | SAP Typical Response |
|---|---|---|
| Company A acquires Company B (both run SAP) | Overlapping contracts and duplicate licenses. Opportunity for consolidation. | Encourages consolidation or net-new purchase under one framework. |
| Company A acquires Company B (only A uses SAP) | B’s business units may need access to SAP. | Requires additional licensing or reallocation of unused capacity. SAP may push for new licenses. |
| Carve-out (Company sells business unit using SAP) | Carved-out entity may want to continue using SAP systems. | SAP typically requires new contract. Original entity cannot transfer licenses without SAP approval. |
| Internal restructuring or legal entity name changes | Might seem minor, but SAP may still require contract novation. | Can trigger license review if not pre-negotiated. |
Real-World Example: A global manufacturer acquiring a logistics firm with SAP ECC found itself with over 1,500 duplicate professional licenses and conflicting support dates.
SAP required a novation of one contract and cancellation of the other, resulting in significant renegotiation and license consolidation under a new agreement, which cost an additional $1.2M in license and support fees. However, they later recouped some of this via unused shelfware credit.
Contract Clauses to Review Pre-M&A
Every SAP contract should be reviewed for clauses that impact post-M&A usage:
- “Assignment” or “Transfer Restrictions”: “Customer may not assign this Agreement or any license granted hereunder without SAP’s prior written consent.”
This blocks the automatic transfer of licenses post-acquisition. - “Territory” Limitations “Licensed software may only be used within the originally defined region or legal entity.”
Critical for global acquisitions — these clauses can trigger compliance risks when users or systems are moved across geographies. - “Usage Rights” Definitions
Defines the legal entity or entities permitted to use the licenses, often restrictive by default. - Support Term Alignment Clauses
SAP contracts typically have separate maintenance schedules. In M&A events, aligning support anniversaries often becomes a challenge — and an opportunity for SAP to reset pricing.
Consolidating SAP Licenses After an M&A
Once ownership and system rights are addressed, organizations should evaluate license consolidation opportunities:
- Identify duplicates: Overlapping contracts often mean duplicate user or engine licenses. LAW (License Administration Workbench) and USMM tools can help identify redundant licenses across systems.
- Consolidate contracts: SAP may offer enterprise agreements to fold multiple contracts into a single framework. This can reduce support fees and simplify audit management.
- Realign user types: Post-merger role changes often make some professional licenses obsolete. Reassess license types to match actual use.
- Negotiate trade-ins: SAP may allow customers to trade shelfware or unused licenses for new licenses needed in the merged entity. This can reduce costs during license realignment.
Example Cost Comparison Before vs. After Consolidation:
| License Type | Pre-M&A Count (Entity A + B) | Post-M&A Consolidated | Savings |
|---|---|---|---|
| Professional User | 2,400 (1,200 + 1,200) | 1,700 (after deduplication) | 700 licenses |
| Maintenance (22%) | $1.06M/year | $0.75M/year | $310K/year |
Navigating Carve-Outs and Spin-Offs
When divesting a business unit, challenges include:
- SAP license ownership remains with the seller.
The carved-out entity typically cannot continue using SAP software unless explicitly licensed. - New contract required:
The spun-off company will need its own SAP license agreement, even if it retains the same SAP systems. - Data access vs. license rights:
Sellers must ensure that access to historical SAP data by the spun-off entity complies with licensing and data privacy rules.
Best Practice: In carve-outs, negotiate a transition services agreement (TSA) that covers temporary SAP access for the divested entity, with a fixed cut-off timeline and license boundaries.
Maintenance and Support Transfers
SAP’s policy generally disallows maintenance transfer unless:
- The license itself is legally transferred (and SAP approves).
- The parties negotiate maintenance continuation under a novated or newly created contract.
Without proper planning:
- You may pay double support (both old and new contracts).
- SAP may reset support baselines at higher list prices.
- Long-term discounts may be lost in restructured agreements.
To avoid this, negotiate:
- Support alignment windows
- Maintenance holidays during integration
- Shelfware offsets or credit programs
Recommendations
- Engage SAP Early: Notify SAP during M&A planning to avoid license surprises and secure leverage before legal events finalize.
- Audit All SAP Contracts: Review assignment, territory, and usage clauses to assess transfer and reuse rights.
- Document All SAP Usage: Map current users, systems, and interfaces to identify overlaps and opportunities for optimization.
- Utilize Internal Law/USMM Audits: Run usage tools to identify duplicate licenses and establish optimization paths.
- Negotiate Consolidation: Push for one enterprise agreement and request credit for redundant licenses across entities.
- Secure Transition Agreements: For carve-outs, establish TSAs with clear access timelines and licensing boundaries.
- Plan for License Transfers Early: Don’t assume licenses are transferable — get SAP’s written approval as early as possible.
- Avoid Unplanned Costs: Factor SAP license and support impacts into the financial modeling of any M&A deal.
- Manage Support Streams: Synchronize support terms across contracts where possible to prevent billing misalignment.
- Engage Independent Experts: Consider consulting external SAP licensing advisors to support contract reviews and develop a negotiation strategy.
FAQ
Q1: Can SAP licenses be transferred during an acquisition?
A1: No, not by default. SAP requires prior written consent for any license transfer. Licenses are tied to the original contracting legal entity. Without approval, the acquiring entity cannot legally use the licenses.
Q2: What is novation in SAP contracts?
A2: Novation is a legal process where SAP agrees to transfer an existing contract to a new entity. It replaces the old customer with a new one, maintaining terms where applicable. SAP approval is mandatory.
Q3: Can we utilize excess licenses from one entity to cover the other after the merger?
A3: Only if SAP agrees. Even if the merged business is operationally one, SAP licensing is contractual. Licenses may not be reused across entities unless contracts are consolidated and SAP authorizes the transfer.
Q4: What happens if we don’t notify SAP during a merger?
A4: You risk non-compliance and audit penalties. SAP may treat post-M&A usage as unauthorized and demand reimbursement. Early engagement mitigates this.
Q5: Do carve-outs retain SAP license rights?
A5: Generally, no. The selling entity keeps the SAP licenses. The spun-off business needs a new license agreement with SAP unless contractually specified otherwise.
Q6: Is SAP flexible during M&A negotiations?
A6: SAP sees M&A as a chance to restructure deals, which means flexibility if approached early. Customers often negotiate discounts, credits, and consolidation if they come prepared with accurate usage data.
Q7: How long do transition service agreements typically last?
A7: TSAs vary but often last 6–12 months. They provide time-limited access to systems (including SAP) while the spun-off entity establishes its own infrastructure and licenses.
Q8: Can we terminate maintenance for unused licenses post-M&A?
A8: SAP typically does not allow mid-term support termination. However, you can often trade unused licenses for credits toward new ones or negotiate as part of a broader deal.
Q9: What’s the biggest risk in SAP M&A licensing?
A9: Assuming that licenses can be freely transferred or shared post-merger. This often leads to unexpected compliance issues, unplanned costs, or pressure from SAP during audits.
Q10: Should we consolidate to a single SAP contract after M&A?
A10: Yes, whenever possible. Consolidating contracts simplifies license management, reduces audit complexity, and improves pricing leverage with SAP.
