Managing SAP Licenses During Organizational Change

Managing SAP Licenses During Organizational Change

Managing SAP software licenses during mergers, acquisitions, divestitures, or internal reorganizations is a complex yet critical task for CIOs and CTOs.

Organizational changes can invalidate existing license terms and create compliance risks if not proactively addressed.

With careful planning and negotiation, these transitions can become opportunities to optimize SAP licensing costs and avoid audit penalties.

The Impact of Organizational Change on SAP Licensing

Business transformations, such as mergers, acquisitions, and divestitures, have a significant impact on SAP license entitlements and usage.

When companies merge or split, their SAP user counts, system usage, and contractual obligations shift overnight.

Without intervention, these events often lead to:

• Overlapping or redundant licenses: After a merger, the new entity may inherit duplicate SAP licenses from each of the legacy companies, resulting in wasted money unless they are consolidated.
• Compliance and audit risks: Integrating systems or splitting off a division can unintentionally put companies out of compliance (for example, giving SAP access to an entity not covered under the original contract). SAP audits are common following M&A transactions and can result in significant fines if unlicensed use or indirect access violations are discovered.
• Rigid contracts not built for change: Standard SAP agreements often lack clauses to effectively accommodate corporate restructuring. Terms like named user counts, affiliate usage rights, and metrics (e.g., revenue or employee count tiers) may no longer align with the new organization, yet cannot be unilaterally adjusted.
• Complex renegotiation: Divestitures and restructuring invariably force contract changes or new agreements with SAP. Negotiating these under tight timelines (often during a busy integration or separation) is challenging without specialized licensing expertise.

In short, organizational change can turn SAP licensing into a legal and financial minefield. However, if addressed early, it also creates an opportunity to eliminate inefficiencies – for example, by eliminating unused licenses or negotiating more favorable terms for the new corporate structure.

Read Divesting a Business Unit Running SAP: Licensing and Contract Strategies.

SAP’s Non-Transferability Rule: Licenses Don’t Automatically Follow Your Business

A key concept is that SAP licenses are generally non-transferable to another independent entity without SAP’s consent.

SAP’s standard contract language includes strict “assignment” clauses preventing customers from assigning or transferring licenses to a new owner or spin-off by default. Practically, this means:

• Perpetual on-premise licenses are sold to a specific company (the licensee, often including majority-owned affiliates only). You cannot split off part of these licenses to a different company or sell them as an asset in a divestiture unless SAP explicitly agrees to do so. If a division running SAP is sold and no longer an affiliate, it loses the legal right to use the parent’s SAP software.
• Cloud subscriptions (e.g., SAP SuccessFactors, Ariba) are tied to the subscribing legal entity and likewise cannot be split or partially assigned. A subscription can sometimes be novated (transferred in whole) to an acquiring company with SAP’s approval, but you cannot simply peel off a portion of users to a new entity mid-term. A spun-off business typically needs to sign a fresh cloud subscription contract in its name.
• Mergers don’t automatically combine contracts: If two SAP-using companies merge, they cannot just use each other’s licenses freely post-merger without updating their agreement. Although the companies are now part of a single group, SAP will insist on a consolidated contract or formal consent to cover combined usage. Using SAP across the merged entity without addressing contract terms would violate licensing rules.

These policies give SAP significant control during corporate changes. Licenses don’t “travel” with business units by default.

Any change in corporate structure – such as a new owner, a spin-off of a subsidiary, or the merging of previously separate license pools – requires engagement with SAP for permission or a new contract. Continuing to use SAP in a new entity without permission can result in a breach of contract and potentially lead to compliance penalties.

Real-world example: A large manufacturer sold a division that had been using the parent’s SAP ERP system. After the sale, the now-independent division continued to access SAP using the old credentials, unaware that the license rights had not transferred.

SAP later audited and deemed all of the new company’s usage as unlicensed, since the division was no longer an affiliate of the original customer.

The result: the new company had to urgently procure its own SAP licenses, and the parent company was in technical breach for facilitating unlicensed use.

This scenario could have been avoided by arranging a proper license transfer or transition agreement with SAP during the negotiation of the deal.

Read Temporary License Bridging for SAP Access During M&A Transitions.

Mergers & Acquisitions: Consolidating Contracts and Eliminating Duplicates

In a merger or acquisition where one or both parties use SAP, CIOs must immediately assess how to rationalize SAP licenses and contracts for the combined organization.

Key considerations include:

• Combining license entitlements: Determine the total SAP usage needs of the merged entity (e.g., total users, modules, and system footprint) and compare against what each company had licensed. Often, there are overlapping licenses or different licensing metrics that need alignment. For instance, one company might have professional user licenses, while the other has limited licenses for similar roles – the merged usage may exceed some license counts or leave others unused.
• Contract consolidation or new agreement: Typically, the merged company will want to consolidate its operations into a single SAP contract rather than maintaining two separate agreements. This may involve migrating one company’s users onto the other’s contract, or negotiating an entirely new contract with SAP that covers the new combined entity. A fresh enterprise agreement can be an opportunity to secure better pricing and terms (using the larger combined spend as leverage). Still, SAP may encourage the customer to upgrade to a new product line (such as S/4HANA or RISE with SAP cloud subscriptions) as part of the deal.
• Affiliate and change of control clauses: Verify if the existing contracts contain a “change of control” clause or permit assignment to a successor entity. If not, SAP will likely require consent and may use this as an opportunity to “reset” the licensing terms. Even if Company A acquires Company B, if B’s SAP contract doesn’t allow assignment, SAP could insist that B’s contract terminates and the new owner must re-license those assets under its agreement.
• Avoiding duplicate maintenance costs: If both legacy companies have SAP licenses for similar users or systems, a merger can mean you’re paying maintenance on more licenses than you need. It’s crucial to identify these overlaps and work with SAP to retire or reallocate excess licenses. (SAP usually doesn’t allow outright cancellation of perpetual licenses mid-term, but a consolidation negotiation might allow you to apply credit from unused licenses toward new needed ones.)

Case in point: Two mid-sized tech firms, each spending roughly $2 million annually on SAP, merged to form a larger company.

Rather than simply combining their existing contracts and continuing as is, they approached SAP with a proposal to modernize and consolidate their SAP landscape.

The merged firm committed to a 7-year RISE with SAP subscription covering a broad suite (S/4HANA Cloud and other SAP cloud services) for all their users.

Because this meant a long-term cloud commitment (something SAP wanted), SAP offered a significant discount – around 30% lower subscription fees compared to the two companies’ previous combined costs – and even bundled in additional products (analytics and platform services) at no extra cost.

The outcome was a unified contract that eliminated redundant licenses, providing the new company with a more cost-effective and streamlined SAP environment.

This “win-win” outcome was only possible because the CIOs viewed the merger as an opportunity to renegotiate from scratch, rather than adhering to the status quo.

By contrast, consider a cautionary tale: Another corporation acquired a competitor of similar size, both of which ran extensive SAP systems. Due to post-merger chaos and other priorities, they maintained their SAP environments and contracts as separate entities for over three years.

They made no immediate changes to license counts or system access, even as some business units began accessing data across both SAP systems. Unknowingly, users from Company A were logging into Company B’s SAP system and vice versa without proper licensing.

When SAP eventually audited the combined entity, it discovered these cross-usage violations – approximately 200 users were using SAP systems for which they weren’t licensed. The company was hit with a $1.5 million compliance bill for those unlicensed accesses.

Furthermore, because they never consolidated licenses, they had purchased and continued to pay maintenance for around 10,000 named users in total, while only 8,000 were actually in use after workforce reductions.

Those 2,000 excess users represented roughly $500,000 per year in wasted maintenance fees. Only after the costly audit did they finally negotiate to unify contracts and eliminate the overlap, by then with far less negotiating leverage.

This outcome illustrates that merging companies should proactively align and clean up SAP licenses early, or risk significant penalties and ongoing overspend.

Read Managing SAP Notifications for Company Changes: Contractual Compliance and Communication Strategies.

Divestitures and Carve-Outs: Spinning Off Parts of the SAP Environment

When a business unit or subsidiary is carved out (sold or spun off as a new company), SAP licensing becomes one of the thorniest separation issues.

The departing entity likely relies on the parent’s SAP systems. Still, once it’s no longer part of the parent’s corporate family, the parent’s licenses can no longer legally be used by that new entity.

Key points to manage in divestitures:

• No automatic license split: Under SAP’s rules, a parent company cannot just give a portion of its licenses to a spin-off. Unless you negotiated a specific provision upfront, all SAP rights stay with the original licensee (the parent), and the new standalone company (let’s call it “SpinCo”) is effectively a brand-new customer in SAP’s eyes. SpinCo will need to obtain its licenses to continue running SAP for its operations.
• Transition period agreements: In many divestitures, the parent agrees to provide IT services for a limited time post-separation (often via a Transition Services Agreement (TSA)). For SAP, this means the parent may continue to run the SAP system on behalf of the new company until they transition off. SAP will usually permit this only with prior approval and often for a fee. For example, SAP might charge a “transition use fee” equivalent to a percentage of the new entity’s license value (say 20%) for the duration of the TSA. It’s essential to negotiate any such TSA usage with SAP in advance to avoid compliance trouble during the interim period.
• New license negotiations for the spin-off: The divested entity should engage SAP early to negotiate its contract. Be aware that, as a smaller standalone business, SpinCo may not receive the same discounted pricing that the parent company enjoyed. It may incur higher per-user costs if it purchases a smaller volume of licenses independently. A joint negotiation strategy can be beneficial here: sometimes, the parent and SpinCo can approach SAP together to strike a deal that covers both parties (e.g., transferring some licenses or providing SpinCo with a reasonable price) to ensure continuity. SAP, however, often prefers to sell new licenses to the new entity rather than allow free transfers.
• Carve-out clauses and partial transfer rights: The ideal scenario is to have planned for this. If the original SAP contract had a carve-out clause – explicitly allowing transfer of certain licenses to a divested unit – then you have a blueprint for splitting licenses. For instance, one global manufacturer anticipated potential divestitures and negotiated a contract clause upfront that allowed up to 15% of its user licenses to be reassigned to a spun-off entity. When they did spin off a subsidiary later, they invoked this clause: roughly 300 out of 2,000 users were transferred to the new company with SAP’s blessing. The new company simply covered the support costs for those 300 licenses (at the same discount rate as the parent), and the parent was able to reduce its maintenance expenses accordingly. Both sides avoided a significant duplication of costs – the spin-off didn’t have to purchase 300 licenses from scratch, and the parent wasn’t required to pay for users it no longer had. Such provisions are rare but extremely valuable if you can negotiate them in your contract.

Without any transfer rights, the outcome is far less favorable. In one divestiture case, a large energy company sold off a division that used its SAP system, but hadn’t arranged any licensing carve-out. After the deal, the parent had to keep the divested unit on its SAP as part of a TSA.

SAP treated this as an exception and charged the parent a hefty transition fee (20% of that division’s license value for one year of use). Meanwhile, the new company, no longer an affiliate of the parent, had to quickly negotiate its own SAP license.

Being much smaller than the parent, it got only a minimal discount off SAP’s list prices – about 40% higher cost per user than the parent’s pricing. They purchased 500 user licenses for SAP S/4HANA at this elevated price point.

At the same time, the parent was left holding 500 SAP user licenses it no longer needed (since those users moved to the new company).

SAP would not let the parent drop those licenses or reduce its maintenance commitment mid-contract, so the parent paid maintenance on 500 unused licenses until its next renewal.

To add insult, losing those 500 users meant the parent’s overall volume tier fell, resulting in a higher support cost percentage on the remaining licenses.

All told, the lack of planning led to an estimated $5 million in extra costs between the two parties (the new licenses for SpinCo plus the parent’s wasted maintenance and fees).

This could have been largely avoided with a pre-negotiated transfer clause or, at the very least, a coordinated approach to SAP at the time of the deal.

The examples above can be summarized as follows, contrasting proactive license management vs. no planning:

Internal Restructuring: Realigning Licenses to Your New Organization

Even when changes stop short of full mergers or sales – for example, internal reorganizations, business unit realignments, or downsizing – SAP licensing should be revisited.

In an internal reorg, you might not be dealing with multiple companies and new contracts, but you can still face:

• Shifts in user counts and roles: If certain departments are eliminated or consolidated, some high-level SAP user licenses (such as expensive Professional user licenses) may become unnecessary for former employees. Conversely, new roles may emerge that need different license types. It’s essential to reassign or downgrade licenses to align with the new roles and headcount, thereby avoiding unnecessary license payments for idle resources.
• Retiring systems or modules: A reorganization might involve retiring a redundant SAP module or instance. Ensure you adjust the license footprint accordingly. For example, if two divisions each use separate SAP add-ons and now one will suffice, consider terminating the extra licenses (usually only possible at maintenance renewal time) or repurposing them elsewhere in the company if allowed.
• Rebudgeting maintenance costs: SAP support fees typically increase annually and scale with the size of the licensed portfolio. If your organization shrinks, you may want to reduce your maintenance base. However, SAP’s policies typically lock you into the existing license count until a contract renewal or a major licensing event occurs. Plan for your next renewal: This is your opportunity to negotiate a reduction in licenses or switch to more appropriate license types to reflect the new, smaller scale.
• Staying compliant through organizational changes: If an internal restructure involves shifting responsibilities or processes between subsidiaries, ensure that any SAP usage remains under the correct licensed entity. As long as all parts remain under the same corporate umbrella (the same licensee and its affiliates), there’s flexibility to reassign licenses internally. But be cautious of any scenario where a formerly internal operation is outsourced or moved to a separate joint venture – that could inadvertently violate license terms if that new entity isn’t covered.

Internal changes are an ideal opportunity to conduct a thorough license audit and optimization exercise.

Many companies find that they can significantly reduce costs by identifying inactive users, consolidating license types (e.g., moving some users from expensive license categories to more cost-effective ones that match their actual usage), and eliminating excess licenses that resulted from past growth.

For example, one company that reorganized after downsizing discovered it had 15% more named user licenses than active employees. They negotiated with SAP at renewal to remove those excesses, saving hundreds of thousands in support fees in the future.

If immediate termination isn’t possible, at least catalog these opportunities so you can act on them at the next renewal or when considering a migration, where licensing can be revisited.

Negotiating with SAP During M&A and Restructuring

Successful navigation of these scenarios largely depends on proactive negotiation with SAP.

SAP is often aware that M&A events are inflection points and may approach them as sales opportunities; however, this can be turned to your advantage if you prepare.

Here are strategies for CIOs and CTOs to consider:

• Engage early, but strategically: Inform SAP of major impending changes (they’ll find out anyway, through news or audit data), but only after you have a clear internal plan. If you’re merging, decide on your target end-state (one system or two?) and which SAP products to standardize on before opening discussions. If divesting, coordinate with the buyer or spin-off to develop a joint message for SAP, if possible. Presenting a united, well-planned request to SAP (“we need X licenses moved or new licenses for Y users, and a path to keep things running smoothly”) can lead to a more collaborative response than a fragmented or last-minute scramble.
• Leverage the situation for better terms: If your company’s size or SAP footprint is increasing due to a merger, use that as bargaining power. Volume is leverage – you may negotiate a higher discount tier or transition to an enterprise license that covers the whole group at a lower per-unit cost. Conversely, if your footprint is temporarily shrinking (through divestiture), push for accommodations such as credit for surrendered licenses or at least protection from support cost increases. Remember, SAP knows that M&A often comes with integration budgets; they will try to capture that budget, so negotiate hard to ensure you’re getting value (such as modern technology or flexible terms) for any new spend.
• Ask for flexibility clauses: Don’t be shy about requesting contract terms that address your situation. For example, add a clause to permit the divested entity to use SAP for a defined period, or grant them the right to transfer a subset of licenses. For mergers, ensure the contract can be assigned to a new consolidated entity without penalties. Additionally, consider requesting short-term license capacity increases if you require overlapping use of systems during the transition (sometimes referred to as temporary flex licenses). SAP may not grant everything, but if you don’t ask, you definitely won’t get it.
• Address indirect access and metric changes: M&A can impact your metrics (such as increased employee count, transactions, or third-party system interfaces). Use the negotiation to clarify or re-baseline those. For instance, if you’re concerned about indirect access (now referred to as Digital Access) due to new system integrations, consider adopting SAP’s Digital Access Document model through negotiation, which may help cap your exposure. One acquiring company in the pharmaceutical sector did exactly this – after merging, they audited all system interfaces and opted into SAP’s digital access licensing program, thereby avoiding a potential indirect usage audit and saving an estimated $3 million in future penalties and license costs.
• Get expert help if needed: Navigating SAP’s licensing rules and tough negotiators can be daunting, especially under deal time pressure. Consider engaging independent SAP licensing advisors or legal counsel experienced in software contracts. They can identify hidden risks (like obscure contract clauses triggered by a change of control) and help formulate a negotiation strategy that protects your interests. The cost of expert advice is often trivial compared to the potential millions at stake in SAP licensing outcomes.

In any negotiation with SAP around M&A, maintain a balance: you need SAP’s cooperation to keep the business running smoothly (so a combative approach can backfire), but at the same time this is a rare chance to reset the relationship – SAP sales teams will be eager to secure your post-change business, which can translate to incentives.

Be clear about your goals (cost savings, product needs, timeline) and ensure everything is documented in writing as an amendment or new contract to avoid ambiguities later.

Recommendations

• Review all SAP contracts at the first hint of a deal: As soon as an acquisition, merger, or divestiture is being planned, inventory and analyze the relevant SAP license agreements. Look for clauses on assignment, affiliate use, change of control, or divestiture. Early insight into your contractual leeway (or lack thereof) will shape your strategy.
• Perform a pre-merger license audit: Before combining companies or carving one out, conduct an internal audit of SAP usage and licenses. Identify unused licenses, overlapping user accounts, and any compliance gaps. This data enables you to negotiate from facts – for example, knowing you have 500 spare licenses could support a request to transfer some or receive credit.
• Coordinate with the other party: If you’re the seller in a divestiture or the buyer in an acquisition, collaborate on a unified approach to SAP. Jointly approach SAP for a solution that works for both sides (e.g., a fair split of licenses or a package deal for new licenses). Divide-and-conquer by SAP will lead to a worse deal for each.
• Negotiate transition terms proactively: Don’t wait until after the deal closes. If divesting, negotiate upfront with SAP for a transition period (TSA) where the new company can use your SAP under agreed terms (and fees). If merging, arrange any short-term bridging licenses needed. Get SAP’s approval in writing to cover any interim use of systems by new entities or users.
• Consolidate and clean house post-merger: Quickly unify SAP systems and contracts if the two companies become one. Eliminate duplicate users and unused software. The sooner you consolidate, the less you’ll pay in redundant maintenance and the lower your risk of an audit finding unintentional misuse.
• Incorporate M&A clauses in new deals: When signing any new SAP agreement or renewal, include language for future flexibility. Push for contract clauses that allow license transfer in a spin-off, or that an acquiring entity can assume the contract without penalties. Even if you have no plans to restructure, these terms are insurance.
• Monitor usage during reorganizations: During any reorganization, closely track changes in SAP usage. Utilize license management tools to determine if any licenses can be retired or reallocated. If employees or processes change, ensure that new usage patterns continue to comply with license roles and counts.
• Avoid unilateral actions – work with SAP: However tempting, don’t just “do it and hope for the best” (e.g., letting a spun-off unit keep using SAP without telling SAP). SAP will eventually notice through audit or support channels. It’s better to be upfront and negotiate a solution than to face a compliance violation later.

Read Merging SAP Contracts After a Merger.

FAQ

Q1: Can we transfer some of our SAP licenses to a company we’re divesting?
A1: Not under standard SAP rules. Licenses are tied to the original customer and can’t be split off without SAP’s consent. You would need to negotiate a carve-out agreement or include a clause in your contract that allows for a transfer. Otherwise, the new entity must acquire its own SAP licenses (or possibly take over an entire contract via a novation, with SAP’s approval).

Q2: What happens to our SAP contract if we merge with another company?
A2: In a merger, you’ll need to consolidate or renegotiate your SAP contracts. SAP will usually require the merged company to sign either an amended agreement or a completely new contract covering the combined entity. The specific outcome depends on your existing terms (e.g., assignment clauses) and negotiation; however, plan to formally integrate the licenses. Until then, each company’s licenses remain separate; using one company’s SAP system for the other’s users without permission would breach the terms.

Q3: We acquired a smaller firm that also uses SAP – can we just let them use our SAP system?
A3: If both companies were SAP customers, you should carefully merge the environments. In the short term, if your contract permits affiliate use, you might add the new employees as users under your license (assuming you have capacity). However, the acquired company’s own SAP license can’t be casually merged in; you’ll likely work towards consolidating on one system and one contract. Always inform SAP and ensure you have the licenses for any new users. The goal is to avoid parallel contracts in the long term and ensure that all usage is covered legally.

Q4: How can we avoid paying for duplicate or unused SAP licenses after a merger?
A4: Conduct a thorough license audit immediately after the merger. Identify all user accounts and SAP products from both sides. Determine the true requirements for the combined organization and then work with SAP to eliminate overlaps. This may involve terminating maintenance on unused licenses at the next renewal or converting redundant licenses into ones you need. Also, unify into a single SAP system if possible – running two parallel SAP landscapes will almost always result in inefficiencies and additional costs.

Q5: Will SAP audit us after an M&A event?
A5: Quite possibly, yes. Mergers and divestitures are known triggers for SAP audits because these events often introduce compliance gaps. Assume that SAP is monitoring the situation. The best defense is to be proactive: conduct your compliance checks and engage with SAP with a plan to stay properly licensed. Showing SAP that you’re on top of it may stave off a formal audit. If audited, having documentation of your new license allocations and any relevant agreements (such as a TSA) will help resolve the issue more favorably.

Q6: What is a Transition Services Agreement (TSA) in terms of SAP usage?
A6: A TSA is a short-term agreement where the seller (or parent company) continues to provide services to the divested unit after the sale. For SAP, this means the parent keeps the SAP system running for the new company for a limited time. Since the new company isn’t the original licensee, SAP must permit this arrangement. Typically, SAP will charge a fee or require an agreement addendum for TSA use (often a percentage of the license’s value) and will set a time limit. A TSA gives the new company breathing room to migrate to its own SAP system or alternative solution.

Q7: Our organization is undergoing internal restructuring – can we reduce our SAP license count to save costs?
A7: In the middle of a contract term, SAP won’t let you simply drop licenses and get a refund on maintenance. However, you can optimize usage by reassigning licenses from departed employees to new ones, downgrading high-level licenses if certain users no longer need full access, and holding off on purchasing new licenses if you can reuse existing ones. When your renewal or license true-up comes, that’s the time to negotiate a reduction in license count or shift to a smaller package. Document the unused licenses now so you have a case to present at renewal.

Q8: How does moving to SAP S/4HANA or cloud factor in during M&A?
A8: SAP often uses major changes to encourage customers onto S/4HANA or cloud offerings (like RISE). If one or both companies in an M&A are still on older SAP ECC, SAP might propose a deal to move to S/4HANA as part of consolidating contracts. There are pros and cons: you might get preferential pricing or incentives to transition, but you’ll also be committing to a big migration. Evaluate whether the timing aligns with your IT strategy. If you do want to move in conjunction with the merger, leverage the situation to negotiate hard. As a merged entity, you’re a larger customer, and SAP will be keen to secure a long-term subscription, which can translate to better discounts.

Q9: What contract clauses should we negotiate to protect ourselves in future M&A scenarios?
A9: Aim to insert flexibility into your SAP agreements. Key clauses include: assignment or change-of-control provisions (so a merger doesn’t void the contract and can transfer to a new owner), divestiture carve-out rights (allowing a portion of licenses to transfer to a spun-off entity), and permissive language for affiliate usage (covering subsidiaries you might acquire in the future). Additionally, consider clauses for cloud subscriptions that permit the reallocation of subscriptions if a division is sold. Having these in place beforehand will save a lot of pain if a transaction occurs.

Q10: Should we involve a third-party licensing expert or lawyer when negotiating with SAP for a merger and acquisition (M&A) deal?
A10: It’s often a wise move. M&A deals are high stakes, and SAP licensing is highly specialized. An independent licensing advisor or experienced software attorney can pinpoint non-obvious issues (like how indirect use might spike after an integration, or how a contract clause could cost you millions) and can support or even lead negotiations with SAP’s team. They are familiar with SAP’s playbook and understand what discounts or terms are reasonable, which can significantly improve the outcome. Given the potential cost of getting it wrong – in fees, duplicate spend, or lost leverage – expert help can pay for itself many times over.

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