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6 Areas to Negotiate for Effective Terms in a Merger & Acquisition

The confusions from a Merger & Acquisition or Divestiture

Organisations considering a merger-and-acquisition initiative or divestiture must be able to manage Oracle licence compliance after the process(es) settle down. Oracle licensing confusions mostly arise as a result of standardizing platforms, consolidating databases and organizational disruption that drastically changes the way in which the hardware and software are used. The confusion is further stretched due to geographies and legal jurisdictions being redrawn, new users being authorized or getting expired, and also new software agreements and licences being added or shed.  

Take care of the contracts, and the contracts will take care of you

To avoid the licensing pitfalls due to an irresponsibly drafted Oracle contract, it is critical that detailed T&C’s related to a likely M&A activity or divestiture must be put in place. Due to a broad range of unforeseen changes in circumstances, it is very difficult to contractually negotiate all challenging areas, towards managing compliance even after a remarkable effort from the IT team towards looking out for probable loopholes.  

The major 6 critical areas to consider are as follows:

♣ Negotiate to extend time to process a divestment

By default, Oracle will generally agree to allow processing for 6 months after divestiture. For all practical reasons, the divestiture is likely to take longer and therefore the customer is advised to try to negotiate for 12 months to process for the divested entity as 6 months may not be enough time for the divested entity to find a replacement product or solution.

♣ Protect the usage rights of the divested entity

During a divestment, Oracle will limit the actual running of the software licences to only the original organization, and not at the location of the divested entity – however there may be some need to process at the divested entity’s site as well. So customers must also try to negotiate for the right to transfer some of the ULA software to the divested entity.

♣ Maximize the revenue cap for acquired companies

Oracle usually includes a revenue cap on the size of companies that are acquired that can be then included in the ULA. The customer must ensure that this cap on revenue is realistic for its future plans and growth strategies.

♣ Negotiate on how support costs on acquired entities will be handled

An Oracle ULA agreement will require that the acquired entities following an M&A activity must convert and replace all existing program licences based on Oracle’s then-current technical support policies. The customer must ensure that Oracle has explicitly made it clear that this clause should apply only to the products on the ULA.

♣ Ask Oracle for the entitlements record owned by an acquired entity

Oracle must be required to provide an inventory list of licences owned by an acquired entity, along with a contractual 30-day period towards reconciling the inventory with the merged or acquired entity’s record of licence grants. The customer must be granted the right to exclude products that are not intended for use, along with rights to drop unneeded licences.

♣ Remove clauses on acquired companies’ support requirements

The Oracle ordering document states the customer will agree to pay technical support costs for any acquired entities, including a requirement to pay reinstatement fees for software that have been out-of-support. Customers must ensure that only the products on the ULA should be subject to any reinstatement fees, without breaching the MSL policy.

 

Do not be a ‘red flag’ for Oracle – The audit may be on its way !

The confusion that accompany an M&A can only make the Oracle end-user exposed to non-compliance from violating the compliance terms of their software agreements. This vulnerability can be a red flag for Oracle who is always sharp-eyed about identifying and pursuing organizations that run afoul of their contractual terms. Granular transparency in regard to Oracle licensing can help navigate the challenges of integration or divestiture.  

Take control through an expert Oracle licence review

An effective Oracle licence review and contracts analysis must be an integral part of implementing an M&A strategy. Unfortunately, Oracle licence compliance has traditionally been on the back burner from a strategic perspective, and the responsibility lies with the end-user towards developing a business case regarding the ramifications of contractual non-compliance, specifically in the context of a merger and acquisition or divestiture.