Mergers & Acquisitions: Microsoft Licensing Considerations Part 1
Businesses new to acquiring, divesting, or merging will not fully appreciate how complex the entire process is — it can be fraught with potential pitfalls and hazards, and engaging with the correct professionals is imperative.
One little-known and often misunderstood element of mergers & acquisitions (M&A) is the impact that this can have on either business’s license contracts. My post will highlight some of the key areas to consider, avoiding unbudgeted costs and risk at a time when financial surprises would not be welcome.
Microsoft Contracts
Microsoft has various agreements within its contract stack and an understanding of what each contract means and contains concerning definitions, terms and conditions, and obligations is important to review in advance of M&A activity. For example, the Microsoft Business & Services Agreement (MBSA) is an evergreen umbrella agreement which contains Microsoft’s definition of an organisational affiliate and the level of ownership between parties. The standard MBSA definition says;
‘Control means ownership of more than 50% interest in voting securities in an entity or the power to direct the management and policies of an entity’
Thus, will the proposed activity satisfy the definition? A joint venture might require an amendment to that definition.
The standard Microsoft Enterprise Agreement, an evergreen subset of the MBSA, outlines Microsoft’s position in the event of acquisitions, divestitures, and mergers that if there is a license change of more than 10%, they will;
‘..work in good faith to determine how to accommodate its changed circumstances in the context of this agreement’
The Enterprise Enrolment, the subset contract of an Enterprise Agreement is typically a three-year contract for purchasing licenses. It outlines the contractual licensing obligations such as enterprise-wide commitments e.g., Qualified Devices and/or Qualified Users, or for certain server software purchased under a Server & Cloud Enrolment (SCE), as well as price-level discounts.
For example; if an SCE customer with Windows Server enrolled commits to licensing its entire Windows Server infrastructure with License & Software Assurance, there is no option to license Windows Server with perpetualised licenses (licenses that have no Software Assurance) or from a different license agreement. What license impact acquiring server infrastructure from an acquiree should be considered; is there an unforeseen SCE True-Up on the horizon because of its contract terms and conditions? Thus, knowing what your contractual license obligations are, is important.
Similar scrutiny should be applied to any other Microsoft volume licensing agreements such as Select Plus, MPSA, or Open.
Microsoft Entitlement
What entitlement does the acquired business hold? How has it been licensed? Are there any known licensing challenges? What licenses can be transferred, and what process if any needs to be followed?
A general rule of thumb is only perpetual licenses can be transferred; subscription licenses e.g., 365 or Software Assurance cannot be transferred. If transferring volume licenses (purchased under an Open, Select Plus, MPSA or Enterprise Enrolment) the ‘Perpetual License Transfer Form’ needs to be submitted to Microsoft. Microsoft will acknowledge if the Transfer has been approved, but it will not be reported or reflected in the acquirer’s Volume License Services Portal (VLSC) or Microsoft Administration Center (MAC the replacement portal for VLSC). Therefore, the onus is on customers to maintain their records that the transfer has taken place.
If an acquiree has licensed any perpetual software via the Cloud Solution Provider (CSP) program or Original Equipment Manufacturer (OEM) licenses, then similarly, you must maintain its proof of license.
Microsoft License Position
An internal Microsoft Effective License Position (ELP), or a self-audit reconciliation of deployment/usage versus licenses is necessary to highlight any challenges that need resolving and where there are opportunities to exploit, such as consolidation and reduction of licenses. In the case of standard Enterprise Enrolments, there may be a usual restriction on reducing licenses if a customer is committed enterprise-wide, Microsoft will work in ‘good faith’ as previously described.
Summary
It may not become apparent until after M&A activity has occurred, the precise details of what the other party has in terms of Microsoft contracts and entitlement, therefore an effective license position as soon as possible is recommended. M&A activity can set off a countdown clock to an audit particularly if there hasn’t been one for several years.
In the second part of this series, we will look at some of the additional licensing considerations that could arise as part of the transition process during change, and what Microsoft is doing to make migration of users and data easier.
As experts in enterprise software license optimisation, we have a wealth of experience on this complex topic. Review the post from Oracle SAM Consultant, Charlotte Hough, where she shares her insights on the impacts of M&A activity on your Oracle license estate and listen to the short video post from Head of SAM Practice Jason Pepper and SAM Commercial Manager Brian Lavelle.
For further information take a look at our website or contact us directly.
About the author
Niamh Ni Shuilleabhain is a Principal Consultant here at Version 1.
