SAP Licensing in Divestitures and Carve-Outs

SAP Licensing in Divestitures and Carve-Outs

Carving off a piece of a company that runs SAP always raises tricky licensing and contract questions. SAP’s standard rules generally don’t let licenses “travel” automatically with a divested business.

In practice, the spin-off (SpinCo) often ends up with no legal right to use the SAP software it just “inherited” unless you plan.

Procurement and sourcing teams need to anticipate this: a clean carve-out requires more than just splitting servers and data—it requires sorting through licenses, contracts, and compliance issues so Day 1 isn’t a legal minefield.

SAP Licensing Basics and M&A

• Non-transferable licenses: SAP perpetual licenses and maintenance agreements are normally tied to a specific legal entity (plus any pre-defined affiliates). By default, you cannot sell or assign SAP licenses to another company without SAP’s explicit consent​. A spin-off that leaves the original licensee’s control loses any automatic right to use that software.
• Cloud/SaaS subscriptions: SuccessFactors, Ariba, Concur, RISE with SAP, and other cloud services are typically contracted on a per-tenant basis. These cannot be split or partially transferred under the old contract​. Each company or affiliate needs its own subscription. In short, SpinCo can’t just use the parent’s cloud system after the sale unless SAP amends the agreement.
• Affiliate vs. standalone: If the parent retains majority ownership (over 50%) post-split, SpinCo may still be considered an “affiliate” under the old contract. During this transition, SpinCo could legally use the SAP system as part of the parent company (often for a limited time). However, once the parent lets go, SAP treats the new company as a brand-new customer, with no remaining legacy license rights.

In practice, these rules often come as a surprise to business leaders.

A large manufacturer once spun off a division that was still using the parent company’s SAP ECC system, assuming the licenses would move with the business.

SAP later audited and declared all of the spin-off’s usage unlicensed​.

The result was a rushed license buy for SpinCo, at a higher cost, and a technical breach for the seller. As we’ll see, such a scenario can be avoided with proper planning.

Ensuring Day 1 Compliance

You must ensure that the divested entity is fully licensed on Day 1.

Key tactics include:

• Transitional Service Agreements (TSA): Build in SAP access rights under the TSA. Negotiate a clause (sometimes called a “divested entity provision”) in your SAP contract that explicitly allows the seller to provide SAP access to the spin-off for a defined period (e.g., 6–12 months) after closing. This legalizes the transition period. If you missed this requirement during the original contract, you must work with SAP pre-close to obtain a temporary license extension or a formal TSA license agreement. SAP may charge fees for extended use, which is preferable to paying the cost of compliance.
• License assignment or new contracts: If you have a pre-negotiated assignability clause, you can move some licenses (e.g., a certain number of users) to the buyer​. Large customers sometimes carve out a portion of their license pool for future divestitures. Otherwise, plan for SpinCo to sign its new licenses or subscriptions. For perpetual on-premises SAP, this usually means SpinCo will become a brand-new SAP customer. It will need its tenant and contract for cloud products (SuccessFactors, Ariba, RISE, etc.). Coordinate cut-over timing so that SpinCo’s contract starts as the parent’s usage drops off, avoiding duplicate billing.
• Carve-out instances and data migration: Technically separate the environments to ensure a seamless transition. Typically, SpinCo obtains its own SAP instance (logical or physical) with the relevant data migrated from the parent system. For example, you may slice out specific company codes, financial data, HR records, and so on. The carve-out team must plan this early and carefully – it’s not just a licensing issue but also a technical one. Many integrators and SAP tools can help move the right master data and open transactions to SpinCo’s new system. Whatever environment SpinCo operates in on Day 1, it must be fully licensed.

In short, don’t let a day go by when SpinCo’s people log into SAP without a valid license. That means SAP formally authorizes their usage under the parent’s contract during the TSA or SpinCo’s licensed system, which is ready at cutover.

Cloud and SaaS Divestures

Cloud products deserve special mention because their contracts rarely allow sharing:

• New tenant/new contract: If an entire subsidiary with its subscription was sold, SAP might novate that contract to the buyer​. However, if you have a single SuccessFactors or Ariba tenant for the entire company, SpinCo must obtain a separate tenant and subscription. Expect to export data and configurations into SpinCo’s new instance. SAP generally won’t let you “cut out” part of a shared tenant.
• Overlap and billing: Often, there will be an overlap window. SpinCo’s users may still be on the parent’s cloud system while they set up their own. The parents’ contract usually prohibits a “third party” (SpinCo) from using the service. To stay compliant, either negotiate a short-term cover with SAP or accelerate SpinCo’s new contract so it goes live ASAP. Also, watch the numbers: if the parent had a user commitment, you often can’t drop those users mid-term without penalty. Plan the timing of renewals – ideally, align SpinCo’s new term with the parent’s expiration so ParentCo isn’t paying twice​.
• Example: In one case, a parent agreed with SAP that, under a written agreement, it could continue to spin off employees from the old SuccessFactors system for three months after closing. By month 4, the spin-off’s SuccessFactors was live under its contract, and the parent trimmed its subscription accordingly.

Always loop in SAP on cloud splits. Consider RISE with SAP or SAP HANA Enterprise Cloud (HEC) as transitional paths – SpinCo could subscribe to one of these and essentially “rent” SAP until a final setup is complete.

Contractual Protections and Best Practices

The best protection is to build it into your SAP contracts up front. If you ever anticipate selling or spinning off a business, negotiate these clauses early (even as part of an upcoming renewal):

• Assignability/Carve-Out Clause: Add a right to transfer licenses on divestiture. For instance: “If a division is sold, up to X licenses related to that division may be assigned to the new owner with SAP’s notice.” Even a limited one-time carve-out provision is hugely valuable. It legally allows SpinCo to continue using SAP without an emergency purchase. It also frees ParentCo from holding unused “shelfware.”
• Transitional Use Clause: Define the duration and terms of SpinCo’s use of SAP under a TSA. A sample term: “In a divestiture, a former affiliate may continue using the software for up to 12 months under a transitional service agreement.” Be clear on the scope (which systems, which users) and duration. Also, please clarify any extra fees for this interim use. Without this carve-out, any post-close access would be technically considered an unlicensed third-party use – a significant risk.
• Affiliate Usage: Ensure your SAP agreement’s affiliate definition covers a spin-off, at least during the transition. You might specify that a spun-off company remains an “affiliate” for license purposes until [Date] or until it commences its own SAP agreement. That buys a safe window before full separation.
• Sunset or “Watchdog” Provision: Explicitly state when shared use ends. For example: “SpinCo must cease using ParentCo’s SAP systems by [cutover date or X months post-close].” This creates a clear deadline to execute the carve-out or new licensing.
• Audit Protection: Work in cooperation terms for audits. SAP audits often arise in M&A transactions, so they require that any audit of the period surrounding the divestiture be handled cooperatively. Some contracts include caps on certain penalty fees for M&A-driven audits. At a minimum, keep detailed records of user counts by the entity to avoid misinterpretation.

If you’re already mid-transaction and lack these clauses, don’t panic—contact SAP as soon as possible.

They can often agree to amend the contract (for a fee or additional purchase) to allow temporary use. Getting a letter from SAP before closing (even a simple email confirmation of transitional rights) can save a world of pain.

Risks of Non-Compliance

Skipping these precautions puts both parties at risk:

• For the parent company, providing SAP access to SpinCo without permission breaches the contract​. That can invite an SAP audit or even termination of the maintenance agreement. You may also lose volume discounts: if SpinCo leaves but you continue to pay for those licenses, SAP will either require your payment or downgrade your pricing. In one story, the parent had to keep its subscription counts high until the term expired or renegotiate with higher per-user rates.
• For the spin-off: Using SAP without a valid license is illegal. SAP could order SpinCo to shut down systems on Day 1, crippling operations. SAP will likely force a hurried negotiation or demand back-dated license fees. It’s also a red flag for auditors: significant changes, such as sales, often trigger audits.
• Vendor leverage: Software vendors (including SAP) see divestitures as money-making opportunities. They’ll push new deals or transition fees under “compliance” pressure if you haven’t secured proper rights. You could pay twice: once for a rushed interim agreement and again to finalize the split. An audit might also uncover unrelated compliance gaps, potentially resulting in the purchase of hundreds of thousands of new licenses.

Avoid these pains with due diligence. An internal license review well before the carve-out can identify issues early. Ensure your divestiture team includes someone from IT licensing or a specialist who understands SAP’s contract language.

Negotiating with SAP and Transition Options

Put simply, talk to SAP early and strategically. SAP won’t let licenses move without its say-so, but it does offer a few paths:

• Clean split via new contracts: One straightforward approach is to grant SpinCo its SAP agreements from Day 1. For on-prem software, SpinCo would sign a new license and maintenance contract. For the cloud, it sets up a new subscription and tenant. ParentCo should then formally remove those users (and related licenses) from its deal. Negotiate with SAP to ensure SpinCo’s footprint and ParentCo’s adjustments are priced reasonably – maybe even with credits or discounts. Since SpinCo’s user count is smaller, their new deal may have a higher per-user rate (as happens in SaaS renewals)​.
• Partial transfers: If both parties wish to reuse existing licenses, they must obtain SAP’s consent. Sometimes, SAP will allow a one-time partial assignment if it makes commercial sense (often for a fee). For example, if ParentCo has a block of licenses exclusively covering the sold unit, SAP might novate that block to SpinCo​. This is much rarer for shared licenses. If you’re a big customer or long-term partner, SAP may be willing to negotiate some transfer rights as part of a broader deal. In any case, ensure that such agreements are documented in writing before closing.
• License reallocation in mergers (reverse case): Even in M&A, not all solutions involve “moving” licenses. If a new owner has its own SAP deal, it may wrap the acquired company’s SAP usage under that contract (instead of transferring licenses from the seller to the buyer). Or two sibling companies merging can pool licenses and cut redundant ones. The opposite logic applies in divestiture: reorganize and reduce both contracts to fit the new structures.
• SAP-managed cloud (RISE/HEC): Consider shifting the spin-off to an SAP-hosted solution. SpinCo could start on RISE with SAP or SAP HANA Enterprise Cloud. These models are subscriptions where SAP (or partners) provide the infrastructure and license. Transitioning to RISE may require migrating to S/4HANA Cloud, but it bypasses a significant upfront license purchase and offloads compliance to SAP. Later, SpinCo could continue as is or convert to on-premises if needed.
• SAP Partnership Hosting: Some certified partners run “SAP in a Box” for short-term projects. SpinCo might pay a partner monthly fees and avoid dealing with license paperwork immediately. This effectively leases SAP through the partner. Be cautious: Ensure that SAP authorizes this partner and its scope. It’s a handy bridge if SpinCo has only a year or two to sort out a permanent ERP solution.

Throughout these negotiations, remember that SAP’s main leverage is its audit. If you catch licensing issues early, SAP will be more cooperative. To build trust, consider offering to conduct a joint audit or sharing usage data.

If it comes down to a deal, having an experienced SAP licensing advisor or consultant at the table can help both sides find creative solutions while staying compliant.

Key Contract Tips Checklist

Here’s a quick checklist for structuring your SAP agreements around a carve-out:

• Assignment/Novation Rights: Include a clause allowing you to move licenses to a divested entity (up to an agreed-upon limit).
• TSA Carve-Out Clause: Define how long and under what conditions the spun-off unit can use SAP under a TSA.
• Affiliate Definition: Ensure that “affiliate” in the contract covers SpinCo during the transition (for example, as long as ParentCo owns more than X%).
• User and Scope Limits: If SpinCo only needs certain modules or transactions, specify in advance which licenses are carved out to avoid confusion.
• Sunset Date: Explicitly state when SpinCo must start its licensing or leave the system.
• Audit Cooperation: Add a provision that any SAP audit triggered by the transaction will be planned in cooperation with the parties and that SpinCo will be included as an “approved user” until its exit date.
• Sunshine Clauses: In some contracts, you can negotiate minimal penalties if SpinCo is forced to purchase a new license mid-term (for example, a capped, prorated buyout instead of a full renewal).

These points can usually be settled through a compromise (extra fees, reduced discounts, etc.), but getting them in writing before the deal closes is much cheaper and less stressful than scrambling afterwards.

Conclusion

Divestitures and carve-outs are stressful enough without a surprise SAP compliance crisis.

To keep operations legal on Day 1, sourcing teams should work closely with IT and legal to lock down a plan early: know the deal structure (asset vs. share sale), map which SAP products and users are in scope, and engage SAP or partners about how licenses will follow (or not).

Use TSAs and contractual carve-out provisions to bridge any gaps. Depending on timing and costs, consider a clean break (new contracts) or creative interim solutions (partner hosting, cloud subscriptions).

Ultimately, the goal is straightforward: SpinCo should have clear rights to the SAP system it needs, and ParentCo should relinquish unused licenses without either side falling out of SAP compliance. A bit of upfront negotiation and smart contract drafting will smooth the way and save both companies from expensive surprises.