SAP Mergers and Acquisitions Licensing Impacts
Mergers and acquisitions (M&A) often hide complex SAP licensing challenges.
When companies combine, their SAP software agreements don’t automatically blend, which can lead to compliance risks and duplicate costs if left unchecked.
Proactive negotiation and license consolidation are essential to avoid penalties and optimize SAP costs in the newly merged enterprise.
SAP Licensing Impacts and Risks in M&A
In the rush of a merger or acquisition, SAP licensing is often an afterthought. However, software licenses can make or break the financial and operational success of the deal. SAP’s contracts are tied to specific legal entities – they don’t automatically transfer when companies merge.
This means that post-M&A, the combined organization might unknowingly be out of compliance or paying for redundant licenses if no action is taken.
Early attention to SAP licensing during M&A is crucial to avoid unpleasant surprises like audits or unplanned fees.
Key licensing challenges right after an M&A deal:
- Duplicate Contracts: Post-merger, you may inherit multiple SAP agreements covering similar needs, meaning you might pay maintenance twice.
- Licenses Don’t Transfer: SAP licenses stick to the original company; one side’s users can’t just start using the other’s SAP without SAP’s approval.
- Compliance Risk: Unapproved cross-use of SAP systems (without proper licensing) violates contracts and can trigger audits with hefty penalties.
Common M&A Licensing Scenarios and Solutions
- Two SAP Customers Merge: The combined company inherits two separate SAP contracts. You will need to negotiate a unified agreement covering all users; until that’s in place, each SAP system should only be used by its originally licensed users to stay compliant.
- Non-SAP Company Acquires an SAP Customer: The new owner initially has no legal right to use the acquired firm’s SAP system. In practice, this means negotiating a fresh SAP contract (or novating the old one) with SAP’s approval. Often, an interim use arrangement (e.g., a few months of access) is needed to keep operations running during the transition.
In all scenarios, early planning and communication with SAP are vital. Involve SAP licensing experts or consultants if possible – they can spot pitfalls (like a hidden change-of-control clause that voids a contract) and help craft solutions to minimize cost and risk.
Negotiating SAP Contracts Post-Merger
Once an acquisition or merger is underway, it’s time to renegotiate with SAP to align contracts to the new reality.
SAP contract negotiation during M&A is about balancing compliance with cost-effectiveness:
- Review Contract Terms: Identify any “change of control” clauses or assignment conditions in the existing SAP contracts and address them upfront so the merger doesn’t unintentionally void your license rights.
- Engage SAP & Negotiate: Inform SAP about the deal and initiate contract negotiations, but proceed cautiously – SAP may propose an expensive new agreement. Use your increased leverage (and even hint at alternative systems) to negotiate fair terms and preserve your existing investments.
- Interim Agreement: If a full contract will take time, negotiate a short-term written agreement that allows continued SAP use (e.g., 3–6 months) post-merger. This keeps you compliant while you finalize a long-term deal.
Be prepared for SAP to treat the situation as a sales opportunity – they may try to upsell newer products (like pushing a move to S/4HANA or cloud services) or remove steep discounts the acquired company had.
Your goal is to maintain continuity (keep operations running on SAP without interruption) while not overpaying. Enter negotiations with a clear picture of your combined license needs and a willingness to push back to preserve the value already paid for.
Consolidating Contracts to Cut Costs
After the deal, one of the smartest moves is consolidating multiple SAP contracts into a single agreement.
A unified enterprise-wide SAP contract can unlock significant savings and simplify management:
- Larger Scale Savings: Combining two companies’ license volumes can unlock much steeper discounts and more flexibility from SAP.
- No Duplicate Costs: A single unified contract prevents paying maintenance for duplicate user licenses and lets you reallocate unused licenses across the merged enterprise.
- Simplified Administration: One agreement means one renewal date and one set of terms. This makes license management and compliance tracking much easier for the combined organization.
For example, here’s how two separate SAP contracts versus a unified contract might compare:
| Aspect | Separate Contracts (Pre-Merger) | Unified Contract (Post-Merger) |
|---|---|---|
| SAP Contracts | 2 separate agreements | 1 combined agreement |
| Average Discount off List | ~30% each | ~50% (enterprise-level deal) |
| Net License Cost | ≈ $7.0 million (combined) | ≈ $5.0 million (combined) |
| Annual Support | ≈ $1.54 million/year | ≈ $1.10 million/year |
| Renewal Dates | Two different dates | One aligned renewal date |
In this example, the unified contract cuts license costs by ~35% and reduces annual support by almost 30% compared to separate deals.
Beyond cost savings, contract consolidation reduces complexity. You get a single set of license metrics and usage terms, which means no confusion over who is licensed under which legacy agreement.
Just be ready: SAP will likely require a new contract for consolidation, giving you a chance to negotiate fresh terms. Seize the opportunity to carry over the best provisions from the old contracts (such as favorable discount levels or maintenance fee caps).
Recommendations
- Perform License Due Diligence Early: Before the deal closes, audit both companies’ SAP contracts and usage. Identify any compliance gaps or contract clauses (like change-of-control) that need addressing in advance.
- Engage SAP and Secure Consent: Proactively inform SAP about the merger and negotiate contract adjustments or a new agreement. Ensure you get SAP’s formal consent or novation to transfer license rights to the merged entity.
- Use Interim Agreements if Needed: If you can’t finalize terms immediately, get a written interim license agreement (e.g., allowing use of the acquired company’s SAP for a few months). This prevents any licensing gap while long-term negotiations continue.
- Consolidate Contracts for Savings: Plan to merge separate SAP agreements into one. A unified contract gives you volume discounts, eliminates duplicate licenses, and simplifies management (one renewal date, one set of terms).
- Protect Against Inherited Risks: Include clauses in the purchase agreement to shield your company from the seller’s past licensing violations. For example, have the seller cover any SAP compliance penalties that stem from pre-acquisition issues.
- Get Expert Help: Consider hiring an SAP licensing consultant or legal advisor experienced in software contracts to help navigate the negotiation and integration. Their insight can save costs and prevent compliance missteps.
- Monitor and Adjust Post-Merger: After integration, closely monitor SAP usage and costs. Run internal audits (including checking for indirect usage) and adjust license allocations or terms at the next renewal to ensure optimal use and compliance.
FAQ
Q: Does an SAP contract automatically transfer to the new company in an acquisition?
A: No. SAP licenses are tied to the original legal entity and don’t automatically transfer. You need SAP’s consent (often via a contract novation) for the new owner to use the software.
Q: What happens if we don’t address SAP licensing during an M&A?
A: If you ignore it, you risk compliance violations and hefty penalties. The merged firm might unknowingly break license terms by sharing systems or paying for redundant licenses. It often leads to audits, fines, or forced true-ups later.
Q: Could our SAP usage be audited after a merger or acquisition?
A: Quite likely. SAP often initiates a license audit when companies undergo major changes like M&A. You should assume an audit is coming and prepare by doing your own internal license review and addressing any compliance gaps before SAP’s auditors arrive.
Q: Can we use the acquired company’s SAP licenses to cover our whole merged user base?
A: Not immediately – each company’s licenses cover only its own users until contracts are updated. You’ll likely need a new or amended contract combining both license pools; only then can everyone use the same SAP system legally.
Q: How can a merger help reduce SAP licensing costs?
A: Through economies of scale. A combined contract typically secures higher volume discounts (better pricing) than two separate deals. Plus, eliminating duplicate licenses saves on support fees, and one unified contract is easier to manage and usually lowers overall SAP costs.
Q: What should we look for in SAP contracts before a merger closes?
A: Look for any “change of control” clauses that require SAP’s approval or could terminate the contract upon a merger. Also, identify any special pricing or non-standard terms the target had (SAP may not carry those over). Finally, verify the target’s license usage to uncover any compliance issues you would inherit.
Q: Do we need to buy new licenses when acquiring a company that uses SAP?
A: Usually, yes. If the acquisition adds many new SAP users or broader usage, you’ll need more licenses or subscriptions. The acquired company’s licenses may cover some of it (if transferable), but combined usage often exceeds original entitlements, so plan for a license expansion.
Q: How do SAP cloud services (e.g., SuccessFactors, Ariba) get handled in M&A?
A: They’re tied to the original subscriber and not automatically transferable. You’ll need SAP’s help to either transfer the subscriptions or resubscribe under the new company’s name. In practice, SAP often sets up separate cloud instances for a spin-off until a new contract is in place. When merging, plan to consolidate cloud contracts at the next renewal so everyone is on one subscription.
Q: Can M&A cause indirect access licensing issues with SAP?
A: It can. When systems and data are integrated post-merger, new indirect usage of SAP (via third-party applications or interfaces) might occur. Evaluate any new system connections to SAP and ensure you have the necessary licenses for indirect access to avoid surprise fees.
Q: Who should be involved in managing SAP licensing through an M&A?
A: It’s a team effort: include IT asset managers, procurement, legal, and business leaders. Executive sponsors are crucial for major decisions (like big license investments or considering alternate systems). External SAP licensing advisors can also help. Make sure all technical, legal, and financial aspects are addressed so the merged company stays compliant and cost-effective.
