IN TODAY'S ECONOMIC CLIMATE, it's crucial to make the right business decisions. Companies should, therefore, take a thorough approach when it comes to making business decisions, no matter how big or small. In particular, a guarded approach when going through mergers and acquisitions ought to be a given, in view of the considerable costs involved in acquiring another company and the risks attached to acquiring another firm's assets. However, it appears many businesses are not practicing full due diligence.
Last month, safety specialist First Choice Facilities was fined £18,000 for unlicensed software following completion of an acquisition. It was also forced to pay nearly £100,000 after the Business Software Alliance found it was using under-licenced software – £81,000 of which was to purchase sufficient software licences to address the shortfall. The company claimed it had unknowingly inherited the software during the course of an acquisition and it had failed to audit the acquired company's software assets before the point of sale. The cost of this lack of due diligence was an expensive and bitter pill to swallow.
Buying or merging with another firm or company is expensive in itself. As an acquiring business, finding out, when it's too late, that you didn't run the necessary checks and inadvertently infringed intellectual property (IP) rights is a sobering experience – leaving you liable to pay for software licences that the company you acquired should have paid for in the first place.
And yet, this is a common mistake. Many companies wrongly assume the software they inherit is properly licenced and that the licences will automatically transfer to them. In fact, licencing statements for the company being purchased are often not reviewed in time, or even readily available. The acquiring business needs to be persistent in ensuring any licencing costs associated with an acquisition are properly identified and accounted for in financial statements as part of the acquisition – or risk exposing itself to redress.
While many businesses may assume this is an IT problem and delegate the problem of software licenses to an IT manager, the financial repercussions of being found with under-licenced software are very much the FD's headache. And yet, according to the latest BSA research, only 7% of FDs are confident that the software in their organisation is correctly deployed.
There is clearly a disconnect between FDs' traditional responsibilities and their culpability in the event their business is found with unlicensed software. While the nitty-gritty of software licencing may drop off the radar in the midst of more heavy-duty concerns during a merger or acquisition, FDs need to be held accountable for their business software assets.
There also needs to be a greater appreciation of the value of software. Too often, it is perceived as a basic utility, rather than the engine behind a company's success. Once business leaders recognise the implications of taking a lacklustre approach to software management, accounting for IT will rise up the agenda. IT management should be an important consideration, not an after-thought.
Michala Wardel is committee chair for the UK arm of BSA | The Software Alliance
Some very valid points in your article, our view is that contrary to past expansionist tendencies, the forecast for the next few years will see business consolidation through mergers and acquisitions, in a bid to improve profitability and efficiency during difficult economic times. But your piece highlights the point that a lot of businesses embarking on this path will not stop to think of the software licensing implications of such a merger and the resulting exposure to financial and compliance risks.
Software publishers have been known to target companies undergoing mergers and acquisitions for audits because they know that these businesses are at high risk of being out of compliance. Software licence optimisation is crucial to any organisation’s IT and finance programmes and needs to be a priority during the M&A process. Most large organisations with large software estates are implementing license optimisation technology to automate this highly manual and complex task.
Businesses should be aware of potential software licence liabilities they may be taking on, and understand the value of software as an asset, which usually outstrips the value of hardware. Shared ownership of software licences is rarely included in the original licences, giving vendors opportunities for increased revenue. Businesses must scrutinise the licence position of the acquisition target and understand the licence implications for the merged entity if they are to avoid unexpected financial costs.
Posted by: Vincent Smyth, 13 Dec 2012 | 15:58
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