Microsoft Licensing in M&A: Rationalizing Overlapping Services

Microsoft Licensing in M&A: Rationalizing Overlapping Licenses Post-Merger

Mergers and acquisitions often leave organizations with overlapping Microsoft licenses and duplicate software functionality. Rationalizing licenses post-merger is crucial for cost reduction and seamless IT integration.

By identifying redundant tools (for example, two different Microsoft security solutions serving the same purpose) and consolidating under a unified licensing strategy, CIOs and CTOs can eliminate waste, negotiate better volume terms, and ensure compliance in the newly merged environment.

Read Microsoft Licensing in M&A: Consolidating Tenants and Contracts – Best Practices for Handling Microsoft Licensing When Companies Merge or Split.

Overlapping Licenses – The Hidden Post-Merger Cost

When two companies merge, each brings its own Microsoft license agreements and software stacks.

This often results in overlapping capabilities – for instance, both organizations might be paying for similar security suites or collaboration tools. These overlaps translate directly into unnecessary costs.

Every month that parallel licenses continue, the merged company is effectively double-paying for the same functionality. Nearly half of enterprises report paying for some overlapping software during transitions.

The impact scales with organization size: even a $5 per-user/month redundant license costs only $25 monthly for five users, but $500,000 per month for 100,000 users.

Over the course of a year, that’s $6 million wasted on a single overlapping tool. Identifying and eliminating these hidden costs promptly after the merger can deliver immediate savings to the combined bottom line.

Read Microsoft Licensing in M&A: EA Novation and Transfer Strategies.

Identifying Redundant Microsoft Functionality

The first step is a comprehensive license audit across both companies. CIOs should task their teams with inventorying all Microsoft products, subscriptions, and features in use. Key areas to assess for overlap include:

• Productivity Suites: Are both companies using Microsoft 365 or Office 365 plans with similar apps? (e.g., both have Office licenses or subscriptions covering Word, Excel, email, etc.)
• Security and Compliance: Check for duplicate security products – for example, one side might use Microsoft Defender suite within an E5 license, while the other purchased a standalone Microsoft security product. Two different Microsoft security solutions that address the same threat (e.g., anti-virus, threat protection) represent an obvious candidate for dropping one.
• Collaboration and Communication: Both organizations might be licensed for Microsoft Teams, SharePoint, or Skype for Business. Running two separate environments with overlapping functionality can likely be unified into one.
• Infrastructure and Identity: Look at Windows Server, SQL Server, Azure services, or Azure AD-related licenses. If both have on-premises servers with Software Assurance or both have Azure subscriptions performing similar roles, there may be consolidation opportunities.
• Device Management and Mobility: One company may use Microsoft Intune (Endpoint Manager) as part of an Enterprise Mobility suite, while the other utilizes a different Microsoft tool or a third-party solution for device management. Post-merger, a single solution could suffice.

During this analysis, document where the functionality overlaps and quantify how many users or devices are covered by each overlapping license. Often, companies will find scenarios such as two anti-malware solutions in place (both from Microsoft or one Microsoft and one third-party), duplicate analytics tools, or parallel identity management systems.

Prioritize overlaps that incur significant recurring costs or those that complicate the user experience (such as having two different email systems or two security agents on the same endpoint).

Read Microsoft Licensing in M&A: License Carve-Outs in Divestitures.

Real-World Example:

Company A had Microsoft 365 E5 licenses (which include advanced security features like Defender for Endpoint and Cloud App Security) for all employees. Company B had Office 365 E3 plus separate Microsoft Defender for Endpoint licenses for their devices.

After the merger, both sets of users had endpoint protection coverage from Microsoft – one via E5 and the other via a standalone license. By recognizing this overlap, the new organization could eliminate the standalone Defender licenses and rely on the E5 coverage for everyone, instantly reducing the extra ~$5 per user per month cost.

This kind of rationalization might save, for instance, $60 per user annually, which at 5,000 users is $300,000 per year saved, and at 50,000 users is a whopping $3 million in annual savings.

Consolidating and Right-Sizing Licenses

Once overlaps are identified, the next step is to consolidate and right-size. This involves deciding which licenses to retain, which to phase out, and determining the optimal license mix for the combined company.

Key considerations include:

• Feature Coverage vs. Cost: Determine which of the overlapping solutions offers the most complete features needed by the business. In the earlier example, Microsoft 365 E5 includes a broad suite of tools; it might make sense to standardize on E5 for advanced needs and eliminate piecemeal add-ons. Conversely, if only a subset of users requires those advanced features, you might consider dropping high-tier licenses and moving some users to lower-cost plans.
• Volume Discounts: Following the merger, your total user count may place you in a higher volume band. For example, combining two companies of 5,000 users each into one 10,000-user organization can improve your discount tier in an Enterprise Agreement. Eliminating duplicate licenses before renegotiation ensures that you’re not overcounting licenses and allows you to leverage the full user base to obtain better pricing per seat.
• Eliminate Duplicates Immediately: For truly redundant licenses (where both companies pay for the same Microsoft service), plan to eliminate one as fast as possible. This may involve migrating users from one system to another quickly. Each month of delay burns money. If a migration will take time (e.g., merging two Office 365 tenants or two Azure environments), consider interim steps like reallocating unused licenses or using short-term subscriptions to avoid double costs.

Cost Optimization Table: The table below illustrates how consolidating overlapping licenses can translate into savings:

Estimated combined cost of overlapping productivity tools per user.

In each case, rationalization means the merged company only pays for one solution instead of two.

Right-sizing also involves adjusting license counts to actual employee numbers post-merger – often, the merged firm needs fewer total licenses than the sum of the two separate firms (due to role eliminations or efficiency gains).

Ensure that you reclaim and cancel licenses for any departing or redundant employees and systems to prevent paying for idle seats.

Aligning Licensing Contracts and Programs

M&A doesn’t just merge IT systems; it also merges contractual obligations. It’s common for the two companies to have different Microsoft licensing programs or agreements.

For example, one might be on a traditional Enterprise Agreement (EA) with a multi-year term and hefty volume discounts, while the other was buying via a monthly Cloud Solution Provider (CSP) subscription for flexibility.

The unified organization needs a coherent contract strategy:

• Enterprise Agreement Considerations: If both companies have EAs, review their end dates, products, and discount levels. A larger combined company might qualify for a better discount tier (e.g., Level D pricing for 10,000+ seats). However, EAs typically lock you in for 3-year terms. If you’re in the midst of a merger integration, being stuck with a high license count from an EA can lead to paying for unused capacity or redundant products until the expiration date. Tip: If an EA renewal arises during integration, consider negotiating a shorter one-year “bridge” EA or include a contractual clause to adjust quantities post-merger. This provides breathing room to finalize your license needs without overcommitting for a long time.
• CSP and Monthly Subscriptions: Many organizations choose to temporarily shift acquired users to CSP or similar monthly subscriptions. CSP allows you to tune down quickly – you pay only for what is used each month. This agility is valuable during transition when headcount and license needs might fluctuate. The trade-off is slightly higher per-user costs compared to an EA’s volume pricing. For example, you might pay a few dollars more per user for a CSP-based Office 365 license than under a large EA discount. Still, avoiding a multi-year over-purchase can save more in the long run.
• Combining or Terminating Agreements: Determine which contracts can be merged or retired. Microsoft often permits an acquired company to be added as an affiliate under the parent’s EA, but the specifics matter (and some licenses might not transfer directly between legal entities). In some cases, it may make sense to let one company’s agreement lapse and migrate everyone onto the surviving contract. Be mindful of any “future affiliate” clauses in agreements – some EA contracts automatically envelop new subsidiaries, potentially increasing costs if not managed. Engaging your Microsoft account representative early is wise; they can advise on options such as transferring licenses, obtaining prorated refunds or credits for dropped services, or structuring a new, consolidated agreement.
• Licensing Programs Beyond EA/CSP: If companies use Microsoft’s Open or MPSA licenses for certain software, those also need alignment. On-premises software with Software Assurance (SA) benefits should be reviewed – if you drop SA to cut costs, you may lose rights such as version upgrades or hybrid use benefits. Plan any SA discontinuation carefully, ideally once you confirm you won’t need those legacy benefits in the new environment.

In essence, the post-merger period is an opportunity to renegotiate with Microsoft. Armed with a clear view of what you need (after removing overlaps), you can approach Microsoft or your Licensing Solution Provider to secure pricing that reflects the new scale and scope of the merged organization, without paying for redundant products.

Many CIOs leverage this moment to not only cut costs but also simplify their license portfolios – for example, moving to a single Microsoft 365 bundle that covers all core needs, rather than a patchwork of SKUs.

Managing Compliance and Risk During License Consolidation

Rationalizing licenses must be done with an eye on compliance and contractual risk. When merging Microsoft licensing environments, consider these factors:

• License Transfer and Usage Rights: Microsoft licenses are typically tied to a specific organization or tenant. Pure cloud subscriptions (like Microsoft 365) generally cannot be “transferred” between tenants; users must be re-assigned licenses in the target tenant. On-premises licenses under an EA can usually be novated or assigned to a new entity in an acquisition; however, you must follow Microsoft’s rules and may require approval. Always check the terms to ensure that using one company’s licenses for the other’s users is allowed after the merger effective date. In some cases, until contracts are merged, you might need to keep users on their original licenses to stay compliant.
• Audit Readiness: Software vendors, including Microsoft, may increase audit activity after major corporate changes. A merger is a trigger event that may lead to a potential license compliance audit. To avoid surprises, conduct an internal true-up as you consolidate your records. Ensure that after rearranging things, the number of licenses in use matches the number owned under each agreement. If you plan to decommission a set of licenses, formally cancel them if possible (or document that they are shelved and not deployed). By proactively tidying up your license records, you reduce the risk of non-compliance findings. Also, communicate with Microsoft about your integration timeline – they may offer assistance or at least be less likely to assume compliance gaps if you’re transparent.
• Contract Penalties or Obligations: Be aware of any early termination fees or one-time charges. For instance, if you decide to end a contract early (perhaps terminating an acquired company’s EA in favor of the acquirer’s agreement), there may be penalties unless negotiated otherwise. Sometimes, the cost of continuing a redundant contract until it naturally expires must be weighed against the potential savings of consolidating immediately. It may be worth paying a penalty to exit a high-cost overlap, or, conversely, it may be cheaper to run out the clock on a small contract. Analyze these scenarios financially before making the call.
• Security and Data Compliance: As you drop one of the overlapping solutions (say, choosing one security platform over another), ensure that all necessary data and protections are migrated. For example, if each company had separate compliance archival systems (both Microsoft-based), consolidating might involve moving data from one system to the other. Plan this carefully to maintain regulatory compliance (e.g., retention policies, eDiscovery data).
• User Impact and Change Management: Reducing licenses isn’t just a back-end task – it can affect end users. If you decide to standardize everyone on Microsoft Teams (and retire a redundant tool), users from the other company will need to be onboarded to Teams and possibly receive training. The same goes for shifting security solutions (endpoint agents, etc.). Communicate changes to avoid productivity loss or security coverage gaps during the transition. A well-managed integration will ensure that dropping a duplicate license doesn’t accidentally drop a critical capability for any team.

By addressing these considerations, CIOs and CTOs can achieve license optimizations confidently without stepping into compliance pitfalls.

In sum, license rationalization post-merger should be done swiftly but also smartly, balancing aggressive cost-cutting with careful adherence to software license rules.

Recommendations

• Start Early: Begin license integration planning during the due diligence process. Inventory all Microsoft licenses and services in both organizations before Day 1 of the merger.
• Identify and Eliminate Overlaps: Quickly pinpoint overlapping functionalities (especially high-cost areas, such as security, productivity, or cloud services) and develop a plan to eliminate one of each overlap. Prioritize overlaps that incur the highest costs or deliver marginal additional value.
• Unify License Strategy: Decide on a primary Microsoft licensing program for the new entity. For example, if agility is required, consider temporarily moving merged users to a CSP model; if scale is the dominant factor, leverage an Enterprise Agreement with the combined volume to secure discounts.
• Right-Size User Levels: Not all employees need the top-tier license. Match user roles to appropriate license levels (E5 vs E3, full license vs read-only, etc.) in the combined organization to avoid over-licensing. Use the merger as a chance to correct any over-provisioning.
• Engage with Microsoft and Vendors: Proactively involve Microsoft or your reseller in the transition process. They may offer bridge contracts, promotional pricing, or advisory support for merging tenants and contracts. Use the opportunity to negotiate better terms given your new scale.
• Maintain Compliance Documentation: Keep detailed records of which licenses were retired, reassigned, and how you ensured compliance. This audit trail will help if a vendor audit occurs and demonstrate that the merger was handled with proper license governance.
• Consider Cost vs. Contract Commitments: Weigh the savings of eliminating a license against any contract breakage costs. In some cases, it’s worth paying a one-time fee to exit a redundant agreement; in others, plan to phase out gradually at renewal to avoid penalties.
• Centralized License Management: Post-merger, implement a centralized license management process or system for the new organization. This ensures that all software procurement and assignments are managed through a unified team, preventing future overlaps and unused license sprawl.
• Leverage Increased Bargaining Power: With a larger user base, push for better pricing and terms on Microsoft renewals. You may unlock incentives (such as a higher discount tier or bonus services) that neither company could obtain on its own.
• Regularly Review and Optimize: Treat the first 12 months post-merger as a period for optimization. Revisit license usage quarterly to ensure that no new overlaps or inefficiencies arise as teams integrate and IT environments stabilize.

FAQ

Q1. Why is rationalizing Microsoft licenses so important after a merger?
A1. Post-merger, rationalizing licenses is critical because it removes duplicate costs and streamlines IT operations. Each company may have been paying for similar Microsoft products or services. By consolidating onto a single set of licenses and tools, the new organization can avoid paying twice for the same functionality, potentially saving millions of dollars and reducing complexity for both IT and users. It also helps avoid compliance issues that could arise from two overlapping licensing agreements.

Q2. How do we identify overlapping Microsoft licenses between two companies?
A2. Start with a thorough audit of software and subscriptions in both environments. List out all Microsoft products in use (Office 365/M365 plans, Azure services, security tools, etc.) and their assigned users. Then compare for overlaps in functionality. Common overlaps occur in areas such as security (two anti-malware or threat protection solutions), productivity suites (both offer Office 365 licenses), and collaboration (two sets of Teams or SharePoint sites). Engaging a software asset management specialist or using Microsoft’s admin portals reports can help reveal where both organizations cover the same needs with separate licenses.

Q3. Can Microsoft licenses be transferred or merged when companies combine?
A3. Pure cloud licenses (such as Microsoft 365 subscriptions) typically cannot be directly transferred between tenants; instead, users must be moved to a new tenant and assigned new licenses under that tenant’s subscription. However, many Microsoft agreements have provisions for mergers. For on-premises licenses, if Company A acquires Company B, Microsoft usually allows the transfer of B’s licenses to A’s control (often needing Microsoft’s consent). Enterprise Agreements can be merged by adding new users as affiliates to an existing agreement. In all cases, you should review the contract terms and work with your Microsoft representative – they can guide you on legally compliant ways to unify or re-home licenses post-merger without breaching the terms.

Q4. What should we do if each company has a different Microsoft licensing program (e.g., one on EA, one on CSP)?
A4. This is common. If one side is on an Enterprise Agreement and the other on Cloud Solution Provider, you have a decision to make: either consolidate under the EA or move to CSP (or another program) for flexibility. In the short term, some companies keep both programs running to avoid disruption, but that can be inefficient long-term. Consider the merged org’s size and needs: an EA might offer better discounts for a large static user base, whereas CSP is month-to-month and ideal if you expect to downsize or adjust licenses frequently during integration. You might temporarily use CSP for the acquired users (for agility during migration) and then decide at the EA renewal whether to pull everyone into a single renewed EA or continue on CSP. The key is to eventually have one primary licensing program to reduce management overhead.

Q5. How can we negotiate with Microsoft for more favorable licensing terms following a merger?
A5. Use the merger as leverage. The combined purchase volume is higher, so you can ask for deeper volume discounts or incentive programs. Engage Microsoft early, informing them that you’re consolidating environments – they may provide a licensing specialist to help structure a new deal. Consider a short-term bridge agreement (e.g., a 6-12 month EA extension) if you need time to sort out your needs before making a long-term commitment. Also, highlight any redundant licenses you plan to eliminate; sometimes, Microsoft might offer credit adjustments or promo pricing to ease moving all users onto a single agreement. Having a clear plan and demonstrating that you could consider non-Microsoft alternatives (if applicable) can give you negotiation power to obtain more favorable pricing or terms for the new entity.

Q6. What are the cost savings we can expect by cutting overlapping Microsoft licenses?
A6. Savings can be significant. Industry experience shows that software license optimization during mergers and acquisitions (M&A) can trim 15–20% of the combined license spend. The exact figure depends on the degree of overlap. For example, if both companies were paying for similar security packages at $10 per user per month, consolidating to one will save $10 for every user that was double-covered. For 1,000 users, that’s $120,000 per year saved; for 10,000 users, $1.2 million per year. Besides direct savings, you’ll also reduce indirect costs (administration, support) by managing fewer systems. In short, the larger the overlap and user count, the larger the savings – it scales with your size.

Q7. Is it ever not worth eliminating an overlapping license immediately?
A7. In some cases, you may need to delay consolidation due to contractual or operational reasons. For example, if one company has an Enterprise Agreement with two years left, it might be cheaper to let it run with minimal usage than to pay a hefty early termination fee. Or, an acquired company’s mission-critical system might rely on a particular Microsoft product that can’t be quickly migrated – you’d keep that license until you transition off safely. Generally, you want to eliminate overlaps; however, you should perform a cost-benefit analysis for each redundant license, considering termination costs, migration effort, and any risk of disrupting business operations. If the risks or costs outweigh the savings in the very short term, plan a phased retirement of that license instead of immediate removal.

Q8. How do we manage user access and productivity during the license consolidation process?
A8. It’s essential that, while consolidating licenses, users continue to have access to the necessary tools. This often means running two systems in parallel for a short time – for example, during an email and Teams tenant merger, users from the acquired company might continue using their original accounts until cutover day. Plan these transitions during off-peak times and communicate clearly with all affected users to ensure a smooth transition. Provide training if they need to switch to unfamiliar tools (even if it’s just a different version of a Microsoft product). By coordinating IT change management with licensing changes, you ensure cost cuts don’t come at the expense of lost productivity. Many organizations create a detailed integration timeline that aligns license changes with technical migration milestones to avoid any gaps in service for end users.

Q9. What compliance risks should we be aware of after merging our licenses?
A9. The biggest risks are inadvertent under-licensing or contractual violations. For instance, if you start sharing software across the two companies without adjusting contracts, you might exceed licensed quantities. Or if employees from one side begin using software that was only licensed for the other side, that’s a compliance gap. Another risk is that the acquired company might have been out of compliance; once you own it, you inherit that risk. The best approach is to do an internal compliance audit as part of license rationalization. Identify any shortfalls (like 100 extra users using a product beyond what’s licensed) and address them, either by purchasing additional licenses under the new agreement or by removing access. Also, pay attention to geographic restrictions or regulatory requirements; ensure that consolidating licenses doesn’t violate any data residency or regulatory commitments (for example, moving a workload to a region not covered in the original license terms). Staying vigilant on these points will keep the merged entity out of legal or financial trouble related to software usage.

Q10. After consolidation, how can we prevent license overlap and waste in the future?
A10. To avoid repeating the same issues, implement strong software asset management practices. Centralize the approval process for new software and subscriptions – a single IT or procurement team should oversee all Microsoft license acquisitions for the entire company. Regularly review license assignments and usage metrics (Microsoft’s admin center reports can show unused licenses, etc.). Additionally, establish a process for technology architecture governance: when teams propose purchasing a new tool or service, verify if an existing Microsoft solution can fulfill that need under current licenses (to avoid acquiring a redundant product). If the organization makes another acquisition in the future, apply the same rationalization steps early in the integration. Essentially, maintain continuous oversight of your software estate and keep communication open between IT asset managers and business units. This ensures your environment stays optimized – licenses aligned to users’ needs with minimal overlap or waste.

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