The boom in mergers and acquisitions (M&As) has left
IT directors grappling with software licensing deals that are
inflexible and lack transparency, according to leading industry
figures.
Last week, the Office of National Statistics confirmed that
overseas companies spent £19.4bn acquiring UK businesses in the
first quarter of the year, up 25% on the last quarter of 2005.
This surge followed an equally buoyant 2005, which saw M&As
involving UK companies grow by £41bn – or 55% – from 2004.
M&As often presented software suppliers with the opportunity
to increase licensing fees, although the use of software might not
have changed significantly, according to Ray Titcombe, chairman of
the IBM Computer Users’ Association. This was particularly the case
with legacy applications, he said.
“Unless the negotiator for the original licence was particularly
prescient, it would not necessarily have the right terms and
conditions for M&As for licensing a move to shared ownership.
And these can be expensive limitations. Most software suppliers’
terms and conditions are slanted for their own benefit.”
Problems with software licensing were likely to increase with
the number of M&As, said Peter Monk, technical strategy
consultant at the Strategy Supplier Relationship Group, an umbrella
body for leading UK user groups.
“If there is a higher rate of M&As, that increases the
opportunity for suppliers to say, ‘that is outside the existing
agreement’,” he said.
Monk added that users could get nasty surprises from software
licences during a merger, although suppliers were acting within the
law.
“There are a lot of suppliers who would try to gain short-term
cash revenue out of a current situation, but would not be cogent of
a longer term relationship that could be undermined and damaged,”
he said.
Monk said IT directors could be more persistent in negotiating
flexibility into software contracts to allow for changed
circumstances such as M&As. “Most people believe you cannot do
much about it but you can.”
He said most suppliers initially would say they were unable to
change licensing terms dictated from the US, but he had been
successful in changing terms.
IT directors could sell this idea to suppliers by pointing out
that IT directors often share knowledge on which suppliers are more
open to negotiating, without disclosing details.
Nick Kalisperas, director of Intellect, a group representing IT
suppliers, said he could not comment on specifics regarding
software licensing until Intellect had agreed its position.
However, he said that software suppliers were not simply driven
by short-term revenue during a customer’s merger and also took into
account the long-term relationship.