Merger boom leads to software licensing headache for IT directors


Merger boom leads to software licensing headache for IT directors

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.


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