Avoiding M&A Compliance Pitfalls (How Oracle audits can be triggered by M&A activity)
Mergers and acquisitions (M&A) often draw unwanted attention from Oracle’s license auditors. When two organizations combine, they can inadvertently create gaps in Oracle license compliance, and Oracle is quick to initiate audits following major business changes.
This article explains how M&A activity can trigger Oracle audits, outlines common pitfalls that lead to compliance issues, and offers guidance to avoid costly mistakes.
By understanding Oracle’s tactics and planning, CIOs and CTOs can prevent post-M&A licensing headaches and surprise expenses.
Read Oracle’s Transfer Policies in M&A .
Common Licensing Pitfalls in M&A
Many enterprises fall into similar traps during a merger or acquisition when it comes to Oracle licensing:
- Assuming licenses transfer automatically: Management might assume that when you acquire a company, all its Oracle licenses and usage rights simply carry over. In reality, without formal approval, those licenses stay tied to the original entity, leaving the combined company with usage that isn’t legally covered.
- Merging systems too quickly: IT teams may rush to integrate systems and consolidate Oracle environments across the new organization. If done without a license review, this can lead to users or processors running Oracle software without proper entitlement.
- Overlooking the acquired company’s compliance issues: The target company might already have Oracle compliance problems (unlicensed databases, misuse of options, etc.). If you don’t perform a thorough license audit of their deployments before the merger, you will inherit those issues, and Oracle will likely discover them during an audit.
- Missing divestiture timelines: In the case of divestitures, a common pitfall is allowing a spun-off business to continue using Oracle systems beyond the contractual grace period. If a separated entity continues to run on your Oracle licenses past (say) 90 days without new licenses, that’s a compliance violation Oracle will flag.
- Delayed communication with Oracle: Some companies delay notifying Oracle about the merger, hoping to resolve matters quietly. This often backfires – if Oracle finds out from the news first, they may initiate an audit in a less cooperative spirit. Failing to proactively engage (with caution) can make Oracle more aggressive if they suspect you were trying to “fly under the radar.”
Read Oracle’s Transfer Policies in M&A.
Oracle’s Audit Playbook After M&A
Oracle typically has a set playbook for auditing customers after a merger. Once an acquisition is announced or closed, Oracle’s audit team often springs into action.
It’s common to receive an audit letter soon after the deal is public. Oracle will usually invoke its contractual audit rights to review your license deployment across all Oracle products in both the original and acquired organizations.
This means the audit scope can be very broad – databases, middleware, enterprise applications, Java, and more, far beyond the product you might think of first.
Many companies focus on Oracle Database licenses, for example. Still, Oracle’s auditors will simultaneously examine the usage of other Oracle software, such as WebLogic, Oracle E-Business Suite, PeopleSoft, and Hyperion.
During these audits, Oracle pays special attention to your contract details. They will scrutinize the “authorized use” definitions in your agreements (who is allowed to use the software and where).
If the acquired company wasn’t listed as an approved entity under your contracts, Oracle will flag any Oracle software use in that entity as unlicensed. Similarly, if your employees start using applications that were licensed only to the acquired company, that’s also noted.
Oracle’s team essentially looks for any expansion of usage post-merger that wasn’t contemplated in the original contracts.
Audits after M&A are often especially strict, since Oracle knows the customer’s IT environment is in flux and possibly vulnerable.
Sales Pressure and ULAs Post-Merger
Alongside auditing, Oracle often applies sales pressure during mergers and acquisitions (M&A) transitions. It’s very common for Oracle to propose an Unlimited License Agreement (ULA) or a new enterprise-wide licensing deal right after a merger is announced.
The pitch: a ULA can cover the entire combined company with “unlimited” use of certain Oracle products for a fixed period, supposedly simplifying compliance concerns.
While such an offer can be tempting to quickly resolve licensing doubts, CIOs should approach it with caution. Oracle’s ULAs can be expensive and lock you in, so ensure they truly meet your business needs before accepting. Oracle is offering it because they see an opportunity to secure a big sale in the chaos of a merger.
Oracle also tends to strictly enforce timing and rules in divestiture situations. If your contract allows a divested business unit to use Oracle programs for 60 or 90 days, expect Oracle to come knocking as that deadline approaches.
They might directly engage the new standalone company, offering to sign them up as a fresh Oracle customer.
Often, these deals for a spin-off can come at less favorable terms because the new company has little negotiating leverage under time pressure.
Additionally, suppose you request Oracle’s consent for any unusual license arrangements (like extending a transition period or transferring licenses to a new entity).
In that case, Oracle may grant it only with strings attached – for instance, requiring you to true-up licenses or purchase additional support.
Example: Post-Merger Audit Conflict
Mars, Inc.’s experience after acquiring Wrigley is a cautionary tale. Oracle’s aggressive post-merger audit of Mars escalated into a legal battle (Mars sued Oracle in 2015).
The dispute was settled out of court, but it highlights how far an Oracle compliance issue can escalate.
Recommendations
1. Audit Your Licenses Before Oracle Does: Conduct an internal Oracle license audit during the M&A due diligence process. Identify any shortfalls or compliance issues in both your company and the target company before Oracle comes in. This allows you to identify and address problems, or at least be aware of them (and factor the cost into the deal), rather than being surprised later.
2. Involve License Experts Early: Engage your Software Asset Management team or external Oracle licensing specialists when planning a merger or acquisition. They can help navigate contract clauses, evaluate the acquired company’s licenses, and anticipate Oracle’s likely demands. This expertise is invaluable in avoiding missteps that can trigger audits.
3. Notify Oracle Strategically: You will likely need to inform Oracle of the merger (especially if contract clauses require it), but plan the timing and message carefully. It’s often better that Oracle hears about the change from you, showing that you intend to remain compliant, than to discover it from the news. However, don’t volunteer unnecessary information. Communicate that you’re reviewing licenses and want to work with Oracle, but avoid making admissions or over-sharing data until you understand your position.
4. Isolate and Then Integrate: Don’t immediately intermingle Oracle systems between the two companies on Day 1. Keep the acquired company’s Oracle environments separate until you’ve reviewed licenses and received any needed approvals. This containment strategy prevents accidental cross-usage. You can then plan a controlled integration once you have confirmed the licensing is in order.
5. Consider a One-Time Reconciliation Deal: If your analysis finds significant gaps, you might approach Oracle proactively to negotiate a one-time fix (like buying additional licenses at a discount or securing a short-term ULA) instead of waiting for an audit fight. Oracle may be more amenable to a deal if you come forward rather than if they catch you out of compliance. Just be sure any deal is cost-justified and not broader than needed.
6. Scrutinize Oracle’s ULA Offer: If Oracle dangles a ULA or enterprise agreement to “solve” post-merger licensing, evaluate it on its merits. Sometimes it’s a good move, but often it’s more license than you need. Don’t let fear of an audit drive you into a costly long-term contract without analyzing the fine print, exit clauses, and total cost. Negotiate terms if you go that route, and explore alternatives (maybe a targeted license purchase) if a full ULA isn’t warranted.
7. Track Post-Merger Usage Closely: After the merger, keep detailed records of Oracle software usage in the combined environment. Monitor that you stay within your entitlements. If you decommission redundant systems, document that so you have proof if Oracle’s audit scripts find those installations later. Good record-keeping and ongoing self-audits will make any Oracle audit much smoother.
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