SAP licences are contractually non-transferable without SAP's consent. When companies merge or split, those agreements don't automatically adjust. This playbook provides a comprehensive guide to handling SAP licences in M&A events — covering on-premise perpetual licences, cloud subscriptions, carve-out strategies, TSA planning, merger consolidation, negotiation leverage, and audit defence.
One fundamental principle to understand is that SAP licences are generally non-transferable without SAP's consent. SAP's standard contracts contain strict assignment clauses preventing customers from assigning or transferring licences to another entity without prior written approval from SAP. If you attempt to move SAP software rights from one company to another — such as to a spun-off entity or an acquiring company — you must involve SAP and likely negotiate new terms.
These licences are sold to a specific "Licensee" (your company, often defined to include majority-owned affiliates). By default, they cannot be sold, given, or assigned to a different company. Even in an internal reorganisation or spin-off, splitting licences between entities is not allowed unless SAP agrees. The original licensee remains the only party authorised to use the software. Under SAP's General Terms and Conditions, a divested business that is no longer under the original licensee's control would no longer have rights to use that SAP software.
SAP's cloud services — SuccessFactors, Ariba, Concur, Fieldglass, and others — are contracted on a per-subscribing-entity basis and cannot be split or transferred without consent. Each subscription is tied to a legal entity or its affiliates. If part of the business leaves, those users typically can't simply continue using the service under the old contract. There is no concept of "partial assignment" of a cloud subscription.
If a company undergoing divestiture wants to transfer licences to the new entity, or if an acquiring company wants to take over the acquired company's SAP licences, SAP's approval is required in nearly all cases. Without explicit permission — usually documented through a contract amendment or new agreement — continuing to use SAP software in the new entity constitutes a breach of the licence terms. SAP has enforced this by requiring companies to relicence software after an M&A event, or risk compliance penalties.
The non-transferability rule is SAP's standard position, but there are strategies to manage it in M&A events. For context on how SAP's contract structures work, see our guide on SAP ECC and S/4HANA Licence Agreements.
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SAP Licence Assessment →Divestitures — the sale or spin-off of a business unit or subsidiary — present a major licensing challenge. Part of the organisation will split off and form a new legal entity. If the original company (ParentCo) has SAP licences, can some be transferred to the new entity (SpinCo)? The default answer under SAP's rules is "no, not without permission."
If ParentCo retains majority ownership, SpinCo might still qualify as an affiliate under ParentCo's SAP contract. If the contract permits affiliate use, SpinCo could temporarily continue using the SAP system. However, this is a temporary fix — once SpinCo is no longer majority-owned by ParentCo, it ceases to be covered by ParentCo's licence rights and needs its own licences.
This is the common scenario. Under standard SAP contracts, all SAP rights remain with ParentCo and do not automatically transfer to SpinCo. SpinCo must obtain new SAP licences to legally run SAP software. From SAP's perspective, SpinCo is a brand-new customer — even if SpinCo "inherited" servers with SAP installed, it has no right to use them without a licence in its name. Per SAP's software licensing terms, this typically requires either a new purchase or formal transfer with SAP's consent.
In limited cases, companies negotiate upfront — in the original licence agreement — the right to assign or transfer certain licences to a divested entity. If ParentCo had included a carve-out clause allowing licence transfer in the event of a spin-off, SpinCo could receive those licences with SAP's blessing. Absent that clause, any transfer requires going back to SAP for consent, which usually involves fees or new purchase requirements.
SAP frequently monitors customer divestitures. Such events are known audit triggers. If an audit finds that a divested entity continued to use SAP without its own licence, SAP can levy back-dated licence fees and penalties — potentially charging the parent for "illegal use" by the spin-off.
Without a transfer, ParentCo may be stuck paying maintenance on licences the spin-off was consuming. SAP's policy generally doesn't allow maintenance reductions simply because you have excess licences — the parent may pay for unused licences for years. See our guide on reducing SAP shelfware.
In a worst-case scenario, if no licence solution is reached, the divested company could lose access to SAP systems. ParentCo might need to immediately cut off SpinCo at closing to avoid a breach, causing an operational crisis.
SAP knows that parent and spin-off are under time pressure to separate. Without proper contractual provisions, SAP can use the threat of non-compliance to push for a lucrative deal — forcing the spin-off to purchase new licences at list price or charging the parent a hefty fee for extended access.
The best time to address divestiture licensing issues is before they occur — when negotiating your original SAP contract or any renewal. If your organisation even remotely anticipates a possible future spin-off or sale, you should seek contractual provisions that protect you in that scenario.
Include a clause that explicitly allows the assignment of licences or a portion of the agreement to a newly formed or divested entity. For example, language allowing that if a division is sold, the licences proportional to that division's usage can be transferred to the new owner, provided notice is given to SAP. Even a narrow provision — e.g., one-time transfer of up to X users to a divested entity — is extremely valuable. It ensures the divested business can continue using SAP without an immediate repurchase and spares the parent from holding shelfware licences it no longer needs.
At a minimum, negotiate a Transitional Use clause (sometimes called a "divested entity provision") that allows the parent to continue providing SAP system access to the divested unit for a defined period after separation. For example: "In the event of a divestiture, an entity that was formerly an affiliate may continue to use the SAP software for up to 12 months while operating under a TSA with the customer." Key terms to define include scope of use (what systems, by whom), duration of allowed use (6, 12, or 18 months), whether any fees apply, and that the divested entity agrees to the original contract terms during the period.
If you missed the chance to negotiate these upfront, you can try to amend your SAP contract proactively once a spin-off is on the horizon — or as part of any contract renewal — to insert these rights. This might involve some give-and-take with SAP, but the cost is far lower than an unplanned new implementation for SpinCo. For more on negotiation strategy, see our SAP Contract Negotiation: 10 Strategies for CIOs and our Strategic Playbook: Negotiating SAP Contracts and Pricing Protections.
Need carve-out clause language or M&A-ready contract terms? Our former SAP specialists negotiate on your behalf.
SAP Contract Negotiation →There is often a transition period during which SpinCo is not fully independent in IT. Transitional Service Agreements (TSAs) are common — ParentCo continues to operate the SAP environment and allows SpinCo's employees to use it until SpinCo can migrate to its own system. This raises the licensing issue: ParentCo's SAP contract typically doesn't cover an entity that has been sold off.
Work with SAP to obtain a formal agreement allowing SpinCo's use during the transition. SAP may issue a temporary licence or amend ParentCo's contract for the TSA period. SAP may charge for this privilege — some customers negotiate a fee for the extended use. It's often cheaper than full relicensing and buys time. This needs to be negotiated at or before closing the divestiture deal. If you have a pre-negotiated TSA clause, this step is simpler — just notify SAP and follow the contract terms.
Another tactic is to move the divested operations temporarily onto an SAP partner's infrastructure. SAP has programmes like SAP Partner Managed Cloud and SAP HANA Enterprise Cloud (HEC) where a certified partner or SAP itself hosts the software and "leases" licences as part of the service. SpinCo signs a short-term agreement with an SAP hosting partner to run an instance of SAP. This avoids a rushed perpetual licence purchase by using a subscription model to cover the interim. SAP's own RISE with SAP offering could also be an option, converting the environment into a managed cloud contract that SpinCo can later take over.
For a deeper look at SAP's RISE with SAP licensing model and the RISE negotiation playbook, consult our dedicated guides.
Cloud SaaS products — SuccessFactors, Ariba, Concur, and Fieldglass — introduce their own twist in divestiture scenarios. These products are often integrated with the core SAP ERP but governed by separate subscription agreements.
Cloud services are provisioned on a per-customer basis. If part of your company splits off, that part will need its own tenant (instance) of the cloud service. For example, a new SuccessFactors instance for SpinCo's employees — ensuring data separation and giving SpinCo control under a new contract. Setting up a new tenant means migrating relevant data and configurations, which requires coordination and time.
Generally, the existing subscription can't be split or transferred without SAP's agreement. If an entire business unit with a distinct subscription is sold, SAP may agree to "novate" the contract — swapping out the customer's name. But if it's a shared contract (one environment serving the whole company), you can't partially novate. SpinCo must sign a new subscription, and ParentCo reduces its user count at the next renewal.
There may be a period when SpinCo's users continue accessing ParentCo's cloud system. Like the on-prem TSA discussion, the cloud contract probably doesn't allow providing service to a third party. Discuss with SAP if a short-term arrangement is needed. Accelerating SpinCo's contract and tenant acquisition minimises overlap and risk.
Many cloud agreements have minimum terms or volume commitments. If ParentCo had a 3-year subscription for 10,000 SuccessFactors users and spins off 2,000, it can't just stop paying for those 2,000 mid-term. SpinCo will buy a smaller number at a likely higher per-user rate. Coordinate renewal timings — perhaps align SpinCo's new contract to start when ParentCo's current term ends, so neither pays double.
A consumer goods company split off a subsidiary that shared the parent's SuccessFactors instance. The parent exported HR data and implemented a new SuccessFactors tenant for the spin-off. SAP allowed the parent to continue administering former employees on the original system for 3 months post-close under a written arrangement. By month 4, the new environment was live under SpinCo's contract. The parent reduced its subscription at the next renewal from 5,000 to 4,000 users, with SAP adjusting the pricing tier — which unfortunately increased the per-user cost slightly.
For more on SAP cloud licensing complexities, see our analysis of S/4HANA RISE contract challenges and the SAP Digital Access complete guide.
Mergers and acquisitions introduce the reverse problem of divestitures: instead of splitting a licence estate, you combine two or more companies into a single corporate structure. M&A can be an opportunity to optimise and save on licensing — but only if managed shrewdly.
If both entities have SAP licences, you essentially have duplicate contracts and systems. SAP's standard terms prohibit combined use of licences across entities that were previously separate customers unless SAP agrees in writing. Even if your companies are legally merged, from a licensing view you need to consolidate agreements before consolidating system usage.
Negotiate a new, consolidated SAP agreement covering the merged entity. This could be an amendment to one existing contract or a completely new contract superseding both. SAP often prefers a new contract — especially if they see an opportunity to move you to newer products or RISE with SAP. Approach this as a negotiation, leveraging combined scale, not just accepting a bill for the sum of two contracts.
Keep usage separated by legal entity during integration. Company A's system is used by A's legacy employees; Company B's system by B's employees. Avoid cross-use without proper licensing. If some employees need cross-system access, purchase additional named-user licences under the relevant contract. Delay full system integration until you've sorted out contract integration with SAP.
The combined company may end up with more SAP licences than needed — both had 500-user agreements, but merged operations only need 800 total. The new agreement should account for this efficiency. SAP may not willingly credit or cancel licences, but you can negotiate an enterprise licence or flex agreement that consolidates duplicates into a single pool. See our guide on Top 20 SAP Licensing Optimisation Tips.
This is generally more straightforward. If the acquired company becomes an affiliate, you can add their users to your SAP system legitimately by purchasing additional user licences. The key task is quantifying what additional usage the acquisition requires and then executing a true-up with SAP. If the acquisition bumps you into a higher volume bracket, ensure you get better pricing. Don't delay — running significant unlicensed usage even within an affiliate is risky in audits.
If your company doesn't use SAP but acquires one that does, you inherit an SAP-dependent operation without an SAP licence contract. Check the acquired company's contract for change-of-control restrictions. SAP contracts often include provisions where a change of ownership requires SAP's consent — some even terminate upon change of control, forcing re-signing. Seek consent and novation as part of due diligence. Be prepared for SAP to propose a fresh contract where original discounts may be reduced.
As a bigger customer, demand better pricing tiers. If Company A (1,000 users) and Company B (600 users) both had 50% discount, as a 1,600-user entity you should argue for 60%+ discount. Use benchmarks of similar-sized SAP customers. For cloud, larger employee counts may qualify you for more favourable subscription rates.
Post-merger might be the time to negotiate an Enterprise Licence Agreement (ELA) — a fixed fee for broad usage rights over a period. This simplifies compliance and can save costs if you plan to expand SAP usage. SAP has offered enterprise agreements to large customers, usually tied to strategic products.
Both merging companies were paying ~22% annual maintenance. Push for rationalisation so the support fee reflects the combined footprint, not double-counting. If "trading in" licences (e.g., moving from ECC to S/4HANA), ensure maintenance fees for the new contract are based on incremental licence spend.
If one company's contract is up for renewal, combine all needed changes into one negotiation. Timing negotiations around SAP's quarter/year-end can maximise incentives. Consider a "true-up holiday" — request from SAP a grace period to rationalise licences without audit penalties, in exchange for a planned purchase roadmap.
For detailed negotiation tactics, see our SAP Contract Negotiation Playbook and the SAP Licence Negotiation guide.
Merging SAP environments? Optimise your combined licence estate and negotiate from strength.
SAP Licence Optimisation →| Divestiture Scenario | SAP Licence Implications | Recommended Action |
|---|---|---|
| Parent retains majority stake in SpinCo | SpinCo still an affiliate; can use Parent's SAP temporarily. Licence rights remain with ParentCo. | Use this window to plan separation. Negotiate eventual transfer or new licences for SpinCo before affiliate status ends. Include a TSA clause. |
| SpinCo fully separated (sold to new owner) | SpinCo not covered by Parent's licences — must stop using Parent's SAP unless allowed by SAP. ParentCo has excess licences. | Negotiate with SAP: new licence contract for SpinCo, or assignment of some licences. Implement a TSA or partner solution for interim. ParentCo seeks to down-scope maintenance. |
| Pre-agreed transfer clause exists | SpinCo can take those licences with SAP's consent per contract terms. | Execute transfer formally with SAP. Ensure SpinCo signs its own support agreement. ParentCo reduces counts accordingly. |
| No transfer rights, no new licence (risky) | SpinCo continues accessing Parent's SAP without legal cover — both companies out of compliance. | Not recommended. If this occurs inadvertently, urgently engage SAP for a remedy. Always avoid through TSA planning. |
| Cloud apps shared pre-split | Shared environment must be split; SpinCo needs its own instance/licence. | Arrange data migration to new tenant. Get short-term SAP nod for continued access. Sign new subscriptions effective at closing. |
| M&A Scenario | Licence Implications | Recommended Action |
|---|---|---|
| Two SAP customers merge | Combined use not automatically allowed. Each contract limited to its original company. Must consolidate agreements. | Negotiate unified contract leveraging combined scale. Keep usage separated during interim. Retire duplicative licences through negotiation. |
| SAP customer acquires non-SAP company | New users need SAP licences. Original contract may cover affiliates but additional licences needed. | Quantify additional usage. Purchase new user licences, leveraging volume for better pricing. Time purchases with integration milestones. |
| Non-SAP acquirer inherits SAP operation | Change-of-control may trigger contract renegotiation or termination. Acquirer has no SAP relationship. | Seek consent and novation during due diligence. Audit target's compliance. Negotiate new contract or plan migration off SAP as leverage. |
| Combining licence portfolios | Opportunity for volume discounts, enterprise agreements, and maintenance rationalisation. Risk of duplicate payments. | Leverage increased scale. Negotiate ELA or flex agreement. Co-terminate contracts. Demand price protections for future changes. |
These examples illustrate how handling SAP licensing well — or poorly — can financially impact companies in M&A situations.
A global manufacturing conglomerate anticipated potential divestitures. In its SAP enterprise agreement, it negotiated a clause allowing transfer of up to 15% of user licences to a divested entity. Two years later, they spun off a subsidiary and transferred 300 of 2,000 SAP user licences at the same discounted rate. The new company paid SAP annual support for those licences, and the parent terminated maintenance for the transferred portion. Both organisations avoided duplicate costs — saving an estimated several million dollars compared to a scenario with no transfer rights.
A large energy company divested a division relying on the parent's SAP systems, without any prior licence transfer provisions. SAP charged the parent a "transition services fee" of 20% of the divested unit's licence value for 12 months of continued use. The new entity purchased a fresh SAP S/4HANA licence for 500 users at 40% higher per-user pricing than the parent's original deal. The parent was stuck with 500 excess licences it couldn't drop until the next renewal cycle — paying for unused licences while losing its volume discount tier. Combined extra costs: an estimated $5 million.
Two mid-sized tech companies, each spending ~$2M on SAP, merged and proposed a 7-year RISE with SAP enterprise subscription covering the combined entity. Because this represented a strategic win for SAP, they received a 30% lower subscription rate than the combined previous amount, plus additional modules (SAP Analytics Cloud, Cloud Platform) at no extra cost. The companies eliminated two-contract complexity and likely saved money over the period.
A large corporation acquired a competitor of equal size. Both were heavy SAP users. Due to post-merger chaos, they failed to consolidate contracts or systems for over three years. Informal sharing of user logins occurred without additional licences. SAP's audit found ~200 unlicensed cross-users on each system — resulting in a $1.5M compliance bill. They also paid maintenance for 2,000 excess users annually (~$500K/year wasted). Having lost leverage, they were essentially dictated terms to become compliant.
Planning and proactive negotiation pay off, while neglect and assumption ("we thought we could just keep using it") cost dearly. For strategies to avoid audit exposure, see our SAP Licence Audit Readiness guide and SAP Licence Compliance Best Practices.
Need audit defence during or after an M&A event? Our former SAP specialists protect your position.
SAP Audit Defence Service →Successfully navigating SAP licensing through M&A events requires foresight, attention to detail, and savvy negotiation. Here is a consolidated action plan.
As soon as a deal is on the table, conduct a thorough review of all SAP licence agreements — on-premise and cloud. Identify clauses on assignment, change of control, affiliate use, or divestiture. Understanding your contractual position informs how you approach SAP.
Inform SAP of major corporate changes — they will likely find out anyway. Do this after internal strategising. Frame the situation as cooperative — present a united front (ParentCo and SpinCo together) rather than a fragmented message. For mergers, have a clear integration plan and licensing wish-list.
Include TSA use rights and carve-out clauses proactively: "In the event of a divestiture, permission for the Customer to provide SAP access to the divested entity for __ months" and "the right to transfer licences with SAP's consent, not to be unreasonably withheld." See our SAP Negotiation Playbook.
When signing SuccessFactors, Ariba, Concur, or any SAP cloud deal, include language allowing contract assignment to a surviving entity or buyer, with SAP's consent not to be unreasonably withheld. This prevents SAP from using a merger as an excuse to force a contract reset.
If you're the buyer, always assess the target's SAP licensing. Request contract copies and recent audit reports. Evaluate compliance posture. If the target needs a costly SAP true-up, reduce the purchase price or have the seller cover it. For divestitures, map which licences are attributable to the carved-out unit.
Determine TSA duration and scope. Formalise with SAP through a licence addendum or transitional licence. Mark end dates on your calendar. Don't let transitional arrangements drag on undocumented — SAP audits will discover them.
An independent licensing advisor can analyse contracts for hidden risks, quantify needs, and interface with SAP's team on your behalf. These experts know what concessions SAP has given other clients in similar situations. Their cost is usually far lower than what you save. Explore our SAP advisory services.
Let SAP know you have options. In a divestiture, the new entity might consider a competitor's ERP. In a merger, suggest you might delay consolidation or evaluate third-party support. Even as a negotiating tactic, a gentle reminder that you're not captive makes SAP more reasonable. Some spin-offs have chosen Microsoft Dynamics or Oracle ERP when SAP's deal was untenable.
If splitting, co-terminate contracts or align end dates to reduce licences at renewal without penalty. If merging, consolidate maintenance payments. Negotiate clauses ensuring that if user counts decrease due to divestiture, discounts remain the same. See our SAP cost drivers guide.
Put processes in place so any user who needs access to both systems is properly licensed and recorded. If a spin-off occurred, monitor that no user accounts remain in the parent's system after the TSA period. Enforce the boundaries that were agreed.
Continue coordinating on shared licensing concerns post-separation. Issues arise — accessing historical data, needing read-only access. Coordinate with SAP if such needs arise. A cooperative relationship prevents accidental compliance breaches.
Keep copies of contracts, SAP communications granting permissions, and negotiation meeting notes. If SAP verbally agrees to something, get it in writing — verbal assurances don't hold up in an audit. Only contractual terms do.
M&A events can be a catalyst to revisit your entire SAP strategy. Moving to RISE with SAP may make sense post-merger. A spin-off may benefit from a different ERP altogether. Use the change as an opportunity to improve — but ensure any move aligns with your IT roadmap and budget stability.
Leverage SAP Community user groups, forums, and case studies. Knowing that another firm negotiated a creative "carve-out licence package" gives you confidence to request something similar. SAP licensing is complex, and each case has nuances — informed customers get better outcomes.
Whether you're facing a divestiture, merger, acquisition, or complex restructuring — Redress Compliance provides expert, independent SAP advisory from former SAP licensing specialists who know SAP's playbook from the inside.
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