Divesting a Business Unit Running SAP: Splitting Licenses in a Spin-Off
Divesting a business unit that runs SAP requires careful planning to avoid software licensing pitfalls.
SAP’s contracts don’t automatically allow splitting or transferring licenses to a spun-off entity, so CIOs and CTOs must proactively ensure the new company stays properly licensed.
With the right strategies – from transitional agreements to upfront contract clauses – you can keep the spin-off compliant on Day 1 while minimizing extra costs and disruption.
SAP’s Non-Transferability Rule and Affiliate Clauses
SAP software licenses cannot be freely transferred to another company without SAP’s approval.
They are tied to the original licensee (and its majority-owned affiliates), so if a business unit is spun off as a separate company (SpinCo), it has no legal right to continue using the parent’s SAP software unless SAP agrees (otherwise it’s a breach of contract).
- On-Premise Licenses: Perpetual SAP licenses (e.g., for ECC or S/4HANA) are tied to the original customer and its named affiliates. They cannot be assigned or sold to another entity unless SAP agrees in writing. Once SpinCo is no longer majority-owned by ParentCo, it no longer falls under ParentCo’s license umbrella.
- Cloud Subscriptions: SAP cloud products (SuccessFactors, Ariba, etc.) are similarly restricted. Cloud contracts are tailored to the specific needs of the subscribing entity. There is no concept of “partially” transferring a cloud tenant or user set to a new company. SpinCo will need its own subscription agreement (or a contract novation approved by SAP) to use those cloud services independently.
Without planning, a divested unit can suddenly find itself unlicensed despite “inheriting” an SAP system from the parent.
SAP’s strict contract language requires explicit agreement on any transfer of usage rights. Failing to involve SAP in a license handover can put both ParentCo and SpinCo at risk of breaching their contracts.
Read Temporary License Bridging for SAP Access During M&A Transitions.
New SAP Contract vs. License Transfer – Options for the Spin-Off
When licensing a spun-off entity, there are two main approaches: SpinCo gets a new SAP agreement, or some of ParentCo’s existing licenses are carved out to SpinCo (with SAP’s permission).
The table below compares these options:
| Licensing Approach | Description | Pros | Cons |
|---|---|---|---|
| New Contract for SpinCo | SpinCo becomes a brand-new SAP customer with its own contract (ParentCo keeps its licenses). | – Clean break; full control for SpinCo – No dependency on parent after separation – Can right-size licenses for the new business | – Higher license costs (no parent discount) – Requires system migration of SAP data – ParentCo left with unused licenses unless it negotiates a termination |
| Transfer Some Licenses (rare) | ParentCo splits off some licenses to SpinCo with SAP’s approval. | – Minimal disruption for users – SpinCo keeps legacy pricing on those licenses – ParentCo sheds licenses it no longer needs | – Needs SAP approval (not standard) – Potential transfer fees or contract changes – Parent’s remaining licenses may lose volume discount benefits |
Often, a short-term Transitional Service Agreement (TSA) covers immediate needs while SpinCo arranges its own SAP contract. Direct license transfers to a spin-off are uncommon unless that right was pre-negotiated in your SAP agreement.
Pricing Implications and Cost Mitigation
Splitting an SAP estate often raises licensing costs. Volume discounts may be lost when each new entity buys fewer licenses, and there can be overlap costs (for example, both parent and spin-off paying support on the same users during transition).
Plan ahead and negotiate with SAP to minimize these effects – for instance, align maintenance renewal dates to avoid double payments and ask if SAP will allow any unused licenses to be terminated or credited.
Planning Ahead with Protective Contract Clauses
The best time to address divestiture licensing issues is before they happen, by baking flexibility into your SAP contract.
If you foresee a future sale or spin-off, consider negotiating provisions such as:
- Divestiture Transfer Rights: Consider including a clause that allows a portion of the licenses to be transferred to a new owner in the event of a divestiture. Even a one-time carve-out of certain users or systems can save a spin-off from an immediate repurchase and save the parent from paying maintenance on unused licenses.
- Transitional Use Clause: Ensure the contract allows a divested unit to use SAP under the parent’s license for a short period after separation (under a TSA). For example, explicitly allow “continued use for up to 12 months for a former affiliate under a TSA.” This removes any doubt about legality during the transition.
- Price Protections: Negotiate that a divestiture won’t automatically worsen your discount or raise support fees. For instance, if your user count drops, maintenance percentages should not jump due to lower volume. Also, seek an agreement that the spin-off can purchase new licenses at the same discount level you had, at least for an initial order. These measures keep a corporate split from triggering a financial penalty.
With these clauses in place, a divestiture becomes much easier to manage. You won’t be scrambling to get SAP’s permission at the last minute – the rules of the split are already laid out in your contract.
Read Merging SAP Contracts After a Merger.
Recommendations
- Engage SAP Early & Negotiate Clauses: Involve SAP as soon as a spin-off is likely and use that time to negotiate favorable terms (e.g., assignment rights, TSA usage) before the deal is finalized.
- Use a TSA and Plan New Systems: If necessary, establish a Transitional Service Agreement (with SAP’s approval) to cover interim access. Concurrently, start carving out data and setting up SpinCo’s own SAP system well before Day 1 to ensure a smooth cutover.
- Optimize Post-Split & Budget: After divestiture, eliminate or reallocate any licenses the parent doesn’t need (and work with SAP to reduce those costs). Similarly, SpinCo should only license what it needs. Always budget for the worst-case (SpinCo buying new licenses at full price) so you’re financially prepared.
FAQ
Q1: Can we split our existing SAP licenses and give some to the spin-off?
A: Not without SAP’s consent. Standard SAP agreements prohibit transferring licenses to another company unless SAP approves the transfer in writing. In practice, SpinCo will need its own SAP contract (or a special carve-out agreement) that SAP agrees to.
Q2: How long can a divested unit keep using the parent’s SAP system?
A: Only for a short transition period, and only if a TSA covers it. Typically, a TSA grants up to 6–12 months of SAP access post-separation; after that, the new company should be running on its own SAP license.
Q3: What happens if we ignore SAP licensing during a divestiture?
A: It can become a serious (and costly) problem. SAP can audit and demand back-payments or immediate licenses at list price, and the parent may be held responsible for allowing unlicensed use.
Q4: How can the spin-off get a better deal on new SAP licenses?
A: Negotiate with the parent together. For instance, include SpinCo’s license needs in the parent’s next SAP deal so that SAP extends similar discounts. And if SpinCo is open to adopting SAP’s newer products (like S/4HANA Cloud), mention it – SAP may offer special pricing to support that move.
Q5: Can SAP cloud subscriptions be split off in a spin-off?
A: No, not mid-term. If SpinCo were using the parent’s cloud instance (e.g., SuccessFactors), it would need to obtain its subscription and tenant and migrate its data over. You can’t simply peel off a portion of a shared cloud subscription once it’s in use.
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