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.