Merging SAP Contracts After a Merger

Merging SAP Contracts After a Merger: Consolidating Contracts and Eliminating Redundant User Licenses

Mergers and acquisitions can leave CIOs and CTOs grappling with duplicate SAP contracts and overlapping licenses. Merging SAP contracts after a merger is essential to streamline operations and cut costs.

This brief provides a roadmap for consolidating multiple SAP agreements into a single one, eliminating redundant user licenses, and negotiating more favorable terms.

The goal is to ensure compliance while maximizing value for both on-premise SAP environments and cloud subscriptions.

The Post-Merger SAP Licensing Challenge

When two companies merge, each often brings its own SAP license contract and user base.

Suddenly, the newly merged organization is incurring the cost of two sets of SAP agreements that cover similar needs.

Key challenges include:

• Duplicate Contracts: Post-merger, you might have separate SAP license agreements (each with different terms and end dates). This fragmentation complicates management and often results in wasted money.
• Redundant Users: Many employees end up with accounts in both SAP systems, resulting in unnecessary duplication of resources. Without consolidation, you’re effectively double-counting some users and paying maintenance on those duplicate licenses.
• Compliance Risks: SAP’s contracts are tied to legal entities. Even after a merger, the old agreements don’t automatically merge. If employees of Company A start using Company B’s SAP system (or vice versa) without proper licensing adjustments, it violates the agreements. This opens the door to compliance audits and penalties.
• Operational Inefficiencies: Maintaining parallel SAP environments and contracts means extra overhead. IT teams must juggle multiple license audits, renewals, and usage tracking processes until things are unified.

In short, merging SAP contracts isn’t just a formality – it’s crucial to avoid paying for unneeded licenses and to prevent audit surprises.

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

SAP’s Non-Transferability Rule: Why You Can’t Just Share Licenses

A common misconception is that once companies merge, they can freely use each other’s SAP licenses.

In reality, SAP’s standard licensing rules prohibit this without SAP’s consent. Each contract defines a specific “licensee” (the original company and its affiliates at the time of signing).

After a merger, unless contracts are updated, Company A’s licenses can’t simply cover Company B’s users (and vice versa).

Key points to understand:

• No Automatic Transfer: SAP licenses are generally non-transferable. They can’t be reassigned or split between two formerly separate organizations without permission. Even in an internal reorg or spin-off, you can’t just hand some licenses to a different entity without SAP’s approval.
• Affiliate Usage Limits: Most on-premise contracts allow usage by affiliates (usually majority-owned subsidiaries) under the main license. After a merger, the acquired company may be considered an affiliate of the acquirer. However, that typically requires an amendment to include the new affiliate. Until then, each environment should only be used by its originally licensed users.
• Cloud Subscriptions: For SAP cloud products (such as SuccessFactors, Ariba, Concur, or S/4HANA Cloud), the contracts are tied to the subscribing entity. You cannot partially assign a cloud subscription to a new entity. In a merger scenario, you’ll need to work with SAP to either transfer the subscription to the surviving company or consolidate the cloud contracts at renewal.
• SAP Approval Needed: To legally consolidate usage, you will likely need to negotiate a contract novation or a new agreement. SAP uses these moments as opportunities to update terms or sell new products. They will insist on formal paperwork – continuing to operate as one company on two separate contracts without modification is not compliant.

Bottom line: even if the companies are now one business, you must reconcile the contracts. Don’t assume licenses “merge” along with the companies – SAP will treat them as separate until you negotiate otherwise.

Consolidating Contracts for the Merged Entity

To fully realize the merger’s synergies, plan on consolidating the SAP contracts into a single agreement covering the entire merged enterprise.

There are a couple of ways to do this, and the approach may depend on your situation:

• Amend and Extend: One option is to select a company’s SAP agreement for continuation and negotiate an amendment to include the other entity (and its users and products) within that contract. For example, Company A’s contract could be amended to authorize use by the newly acquired Company B. This can sometimes be a quicker fix, especially if one contract had much better terms. However, it may still require purchasing additional licenses to cover the new users.
• New Consolidated Contract: SAP often prefers to craft a new contract that supersedes both companies’ old agreements. In practice, this could be presented as a Global License Agreement (GLA) or an enterprise agreement. All licenses and subscriptions get rolled under one umbrella deal. The benefit is a fresh start – you can align contract terms, set one renewal date, and potentially negotiate from scratch with the combined spend as leverage. The drawback is that it’s a negotiation from the ground up (which can be complex), and SAP will certainly look to upsell or move you to newer products (like encouraging a move to S/4HANA or to cloud services as part of the new deal).

Benefits of a Single Unified Contract:
Consolidating contracts isn’t just about paperwork – it delivers tangible benefits to the business:

• Bigger Volume Discounts: Aggregating two license pools means you’re buying at a larger scale. SAP offers larger deals with higher discounts. For instance, if each company previously got ~25–30% off list price on separate deals, a unified deal might secure 50% or more off due to the higher combined spend. This significantly lowers the cost per license.
• Negotiation Leverage: With one large contract, you become a more strategic customer to SAP. You can negotiate for concessions that smaller contracts couldn’t get. SAP’s sales team is more flexible when millions of dollars are at stake in a single negotiation, rather than being split into multiple smaller agreements.
• Simplified Administration: A single contract encompasses a unified set of terms and a single renewal date. This eliminates the juggling act of managing multiple renewal calendars and different Terms and Conditions. It reduces the risk of missing renewals or getting stuck with unfavorable terms in one of the legacy contracts.
• Unified License Pool: A global contract often allows pooling of licenses. Users can be reassigned across the merged entity without worrying about which legacy contract they belonged to. This improves license utilization – another division can utilize unused licenses, as all fall under the same agreement.

To illustrate the impact, consider an example of separate vs. consolidated SAP deals:

In this illustrative scenario, merging contracts yields a significantly lower net cost (about 35% savings on licenses) and saves over half a million dollars in support fees annually. While actual results vary, the principle holds: one big deal is more cost-effective than two smaller ones.

Note: During consolidation, also strive to standardize terms to the most favorable ones from either contract. If one company had a better discount or a cap on maintenance fee increases, ensure the new contract carries those forward. Consolidation is an opportunity to streamline contractual arrangements and secure the best conditions for the future.

Eliminating Redundant User Licenses

A merger often results in a reduction in total headcount or, at the very least, the elimination of overlapping roles.

This means the combined company may not need all the user licenses that the two companies separately held.

For example, Company A had 500 SAP users, and Company B had 500; post-merger, there may be only 800 distinct users due to role redundancies.

Without action, you’d be paying maintenance on 200 extra named-user licenses that no one needs anymore.

To avoid this waste, take a strategic approach to license optimization:

• Audit and Inventory Users: Conduct an immediate joint SAP license audit across both environments. Identify the number of unique individuals who require SAP access in the merged organization. Tools like SAP’s License Administration Workbench (LAW) can combine user lists from multiple systems to find duplicates. External SAM tools (such as Snow, Flexera, and VOQUZ) can also help flag duplicate or inactive accounts.
• Combine User Accounts: Ensure that each employee has only one SAP user account (per SAP production environment). During integration, IT should eliminate multiple accounts for the same person. For example, if an employee had an account in Company A’s SAP and another in Company B’s, merge those into one account on the chosen primary system. This prevents counting one person twice against license totals.
• Retire Unused Licenses: Identify all SAP users who are no longer with the company or who no longer require access following the reorganization. Those accounts should be retired. While you generally cannot “return” a perpetual license to SAP for a refund, you can stop assigning new users to that license, effectively shelving it. At contract renewal time, consider negotiating the removal or replacement of shelfware licenses to reduce maintenance costs.
• Negotiate Credits or Trades: SAP is reluctant to simply cancel licenses (and their maintenance) because of a merger. However, you may negotiate a trade: for example, terminate maintenance on the redundant licenses in exchange for purchasing something new of similar value (perhaps new licenses of a different type or an upgrade to a newer SAP product). In some cases, SAP might credit you for unused licenses if you commit to a strategic upgrade. E.g., credit the value of Company B’s redundant licenses against a new S/4HANA purchase. This way, you’re not paying double for the same users.
• Monitor Indirect Usage: Mergers can also create “indirect access” overlaps – e.g,. Systems integrated between the two companies may cause data to be pulled from one SAP system into the other. Be mindful of indirect use licenses and consider SAP’s Digital Access model or other licenses if needed to cover these scenarios without surprise fees.

Real-world example: One large merged firm discovered it had 10,000 named user licenses on the books but only about 8,000 active SAP users post-merger.

Those ~2,000 excess licenses were costing roughly $500,000 per year in maintenance fees. This prompted a renegotiation to adjust the contract’s terms.

After analysis, they consolidated their license count and saved millions over subsequent years by not renewing maintenance on software that was no longer in use.

The lesson: carefully identify redundant licenses, then press SAP for remedies to eliminate the waste.

Addressing Cloud and Hybrid SAP Environments

Focus on on-premises licensing is critical, but many enterprises also run SAP cloud services or hybrid models.

Mergers can complicate those subscriptions, so they deserve attention alongside on-prem licenses:

• Cloud Subscription Contracts: If both companies have SAP cloud subscriptions (for example, each has separate SuccessFactors or Ariba contracts), you will want to consolidate those as well. Typically, this means co-terminating them so they end at the same time and then negotiating a single, combined subscription. SAP typically allows you to merge cloud contracts at renewal by signing a new master subscription that covers all users. The advantage is similar to on-premises: a larger volume for better pricing and a single, consistent set of terms. Ensure that the merged contract’s user count accurately reflects the elimination of any duplicate users.
• RISE with SAP or S/4HANA Cloud: In scenarios where one or both companies use RISE with SAP (which bundles S/4HANA and cloud infrastructure in a subscription), consider how to unify those arrangements. You might migrate one company’s users into the other’s RISE contract, or negotiate a new RISE deal that covers the combined entity. SAP often welcomes moving more users onto RISE, so the merger could be a chance to do that on favorable terms (potentially extending contract length or increasing scope in exchange for discounts).
• Data Transfer and Integration: During the interim period, cloud systems from each side may need to exchange data or provision accounts for cross-company users. Check the terms of your cloud agreements – most cloud services are licensed per user or entity, so temporarily sharing access across the merged organization might require SAP’s approval. It’s wise to inform SAP and seek a short-term solution (they may allow a brief overlap of usage rights similar to a transition agreement).
• Avoiding Service Disruption: Aligning cloud contracts can take time, and you don’t want any mission-critical service to turn off because a contract was tied to an entity that legally ceased to exist. Work with SAP to novate cloud agreements – meaning transfer them into the name of the surviving company. SAP’s approval is required, but they will generally accommodate this if approached proactively. For example, if Company B is being acquired, its SAP cloud contracts should be transferred to Company A’s name or merged into A’s contracts, ensuring uninterrupted service for B’s users.

In summary, include cloud products in your overall SAP consolidation plan. The principles (no unilateral transfer, need to negotiate a single combined agreement) apply just the same as with on-premises licenses, though the process and timing may differ.

Negotiation Strategies and Real-World Example

Merging SAP contracts is as much a negotiation exercise as a technical one. SAP will likely propose a new deal, turning the situation into an opportunity for them to sell or for you to save (ideally, both).

Here are some strategies to drive a favorable outcome:

• Leverage the New Scale: Make sure SAP understands that the merged company’s combined spend is on the table. Use benchmarks from similar-sized firms to demand a bigger discount. It’s not uncommon for enterprise deals following a major merger to achieve discounts of 50% or more off the list price on licenses or subscriptions, especially if each company had previously received only 25-30% off separately. Don’t be shy about pointing this out – SAP sales teams expect you to negotiate hard when growth through M&A increases your clout.
• Time the Deal Wisely: If possible, time your contract consolidation negotiation with SAP’s quarter or year-end. SAP often grants additional concessions to close a large deal by the end of Q4. For instance, one company combined all SAP licensing discussions in December, which prompted SAP to increase its discount dramatically (they wanted the deal booked for that fiscal year). The merged entity got not only a great price but also a 3-year cap on support fee increases as a sweetener.
• Consider Future Roadmap: Think beyond just merging what you have today. A merger might be the perfect chance to modernize or expand. Perhaps you’ve been considering moving from ECC to S/4HANA or adopting SAP cloud modules, such as SuccessFactors or Analytics Cloud. SAP often bundles these in during renegotiation. If it aligns with your IT roadmap, you could negotiate an attractive bundle (e.g., an enterprise agreement that includes an S/4HANA upgrade for all users, along with additional cloud services). In a real case, two mid-sized tech firms merged and used the moment to sign a 7-year RISE with SAP subscription covering S/4HANA Cloud for all their operations. SAP, eager for a long-term cloud win, offered them a 30% lower subscription rate compared to their previous separate costs and included extra modules at no additional charge. Ultimately, the customer achieved a modernized SAP landscape and significant cost savings by reevaluating their strategy during the consolidation process.
• Don’t Pay Twice: Be adamant about not double-paying for overlapping licenses. If both companies had, say, 300 SAP Professional user licenses each, and you only need 500 for the combined org, push SAP to acknowledge that 100 are redundant. This could be via credits, as mentioned, or allowing you to drop maintenance on the extras. Document your user counts and present a clear case for why you now require fewer licenses. While SAP reps might initially resist (after all, they prefer you keep paying maintenance), they may concede if you’re also agreeing to a new purchase or a long-term deal. It becomes part of the give-and-take in negotiation.
• Set Transition Terms in Writing: As part of the negotiation, explicitly address the interim period. If you need 6-12 months of both systems running in parallel before fully integrating, obtain a written agreement with SAP that permits dual use for this period without incurring additional license charges. SAP often can grant a temporary waiver or a Transition Services Agreement, allowing both sets of users to access each system while you migrate. Make this part of the deal so you’re protected during the integration phase.

Pitfall to Avoid: Procrastination. Another real-world example serves as a warning: A large corporation that acquired an equally large competitor waited years to address SAP contract integration. In the meantime, employees from each side started informally accessing the other’s SAP systems.

When an audit was conducted, approximately 200 cross-use users were found to be unlicensed, resulting in a $1.5 million compliance penalty.

Moreover, the delay meant they paid maintenance on thousands of excess licenses (money wasted for years). By the time they finally negotiated, SAP knew they were in a bind – the company had little leverage left and had to accept less favorable terms.

The cost of inaction was enormous.

The takeaway:

Treat SAP license consolidation as a priority in any merger. With proactive planning and tough negotiation, you can turn it into an opportunity, securing better pricing and a cleaner licensing position. If neglected, it can become an expensive mess of audits and overspending.

Recommendations

Practical steps for CIOs and CTOs to successfully merge SAP contracts after a merger:

• Start Early: Review all SAP licensing agreements as soon as M&A discussions begin. Early insight into contract terms (transfer clauses, affiliate use provisions, etc.) will guide your strategy and avoid surprises post-close.
• Engage with SAP Strategically: Open a dialogue with SAP after completing internal planning. Present a united, well-thought-out plan for contract consolidation to SAP’s reps. This shows professionalism and keeps you in control of the narrative (rather than reacting to SAP’s dictates).
• Keep Systems Separate Until Legalities Are Sorted: During the transition, maintain clear boundaries – users stick to their original systems. If any cross-access is needed, get temporary permission from SAP. This avoids compliance violations while you work out the new contract.
• Conduct a Unified License Audit: Combine the license usage data from both companies and identify duplicate or inactive users. Utilize SAP’s LAW tool or third-party asset management software to obtain a comprehensive view. This audit is the foundation for rightsizing the new contract.
• Eliminate and Reallocate Redundancies: Once you know the true combined usage, eliminate redundant licenses. Reallocate surplus licenses where possible instead of purchasing new ones, and negotiate with SAP to drop or credit genuinely unneeded licenses when forming the new agreement.
• Leverage New Scale for Discounts: Use the increased user count and spend to secure significantly better pricing. Benchmark industry discounts for deals of your size and aim high (ask for enterprise-level discounts, not just an average of your old deals).
• Align Renewal Dates and Terms: Ensure the consolidated contract has a single renewal date and harmonized terms. This includes support fee caps, flexibility for future M&A events, and possibly provisions for divestitures (so you’re covered in case of future splits).
• Include Cloud in the Deal: Don’t treat cloud products as separate entities. Negotiate those into the global contract or ensure they are co-terminous. A holistic deal covering both on-premises and cloud solutions can yield overall savings and simplify management.
• Document Transition Agreements: If you require an interim period of dual usage, get it in writing from SAP (e.g., a transition license agreement). Having formal permission avoids any gray area that auditors could later pounce on.
• Seek Expert Help if Needed: Merging SAP licenses can be a complex process. Consider engaging independent SAP licensing experts or consultants who have navigated these negotiations. They can provide benchmark data, negotiation tactics, and ensure you’re not leaving money on the table.

FAQ

Q1: Now that our companies have merged, can employees use each other’s SAP systems right away?
A: Not without adjustments. Until you consolidate the contracts or get SAP’s permission, each SAP system is only licensed for its original users. Immediately allowing cross-use (e.g., acquired employees logging into the parent company’s SAP) would violate the license terms. You should first negotiate a unified contract or a temporary agreement with SAP. In the meantime, keep usage siloed by the pre-merger boundaries or obtain a short-term waiver from SAP for any needed overlap.

Q2: How does consolidating SAP contracts save us money?
A: Consolidation reduces costs in several ways. First, it enables higher volume discounts – SAP pricing is volume-based, so a bigger combined purchase gets a better per-unit price. Second, you can eliminate duplicate licenses and stop paying maintenance on them. Rather than maintaining two pools of licenses (with inevitable overlap and excess), you consolidate them into one optimized pool. Additionally, having a single support agreement may qualify you for support fee discounts or at least simplify the administration process. Companies that consolidate often see double-digit percentage savings in their SAP spend.

Q3: What should we do with redundant SAP user licenses after a merger?
A: Identify them through an audit, then negotiate their fate with SAP. If you find, for example, that hundreds of SAP Professional users are no longer needed, you have a few options. You might consider negotiating to terminate maintenance on those licenses (stopping the annual fees) in exchange for purchasing something new. Or you can convert them to a different license type that you do need. In some cases, SAP may offer to credit the unused on-prem licenses if you migrate those users to an equivalent cloud subscription. The key is not to pay for shelfware – proactively bring up these redundancies in your talks with SAP, showing that you understand your usage and expect a solution.

Q4: How are cloud subscriptions like SuccessFactors or Ariba handled in a merger?
A: Cloud contracts don’t merge automatically either. You should inform SAP and likely either transfer the acquired company’s subscription into your name or consolidate both companies’ cloud users into a single contract at renewal. This may involve migrating users from one system to another or connecting the systems under a single master agreement. SAP will often accommodate contract transfers (novation) so that the surviving entity becomes the customer for all subscriptions. Plan the timing (so you don’t have a lapse in service) and aim to align the end dates. Ultimately, negotiating a single, larger cloud subscription for all users will simplify management and can reduce total subscription fees due to volume pricing, just as with on-premises licenses.

Q5: What’s the best way to negotiate with SAP post-merger?
A: Preparation and leverage. Go into discussions with a clear picture of your combined usage and a wish-list of outcomes (e.g., “one contract covering X total users at Y% discount, including product Z module, and allowing a 1-year transition overlap”). Use the fact that your business is now larger to negotiate terms you want – better discounts, flexible terms for future changes, and perhaps the inclusion of new technology. It helps to know industry benchmarks: if you can cite that similar-sized companies get, say, 50% off or have certain favorable clauses, use that. Also, consider the timing – negotiations aligned to SAP’s end-of-quarter or year can yield extra concessions. The main thing is to treat it as a fresh negotiation, not a formality. Everything is on the table: price, license quantities, contract terms, even swapping old licenses for new. If needed, involve a licensing advisor or legal counsel to strengthen your position. With a solid strategy, you can turn the merger into an opportunity for a much better SAP deal.

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