Microsoft Licensing in M&A: Transferring Volume Licenses and Cloud Subscriptions

Microsoft Licensing in M&A: Transferring Volume Licenses After Acquisition

In a merger or acquisition (M&A), handling Microsoft software licenses requires careful attention to avoid compliance risks and unexpected costs.

Microsoft’s rules generally allow transferring on-premises perpetual volume licenses between entities after an acquisition; however, subscription-based licenses (such as Office 365 or Software Assurance) cannot be transferred simply.

CIOs and CTOs must follow Microsoft’s transfer process and plan for licenses that can’t be moved, ensuring a smooth integration without any legal or financial surprises.

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

Licensing Challenges in Mergers & Acquisitions

M&A events introduce complexity into software asset management. When one company acquires another, it might seem that all the acquired organization’s software licenses become assets of the new owner.

However, Microsoft’s license agreements contain specific clauses about ownership and transfers:

• Affiliate ownership: Microsoft defines an affiliate as an entity under common control (typically >50% ownership). Only when this control condition is met are license transfers considered within the same corporate family.
• Contracts and clauses: Enterprise Agreements (EAs) and other volume licensing contracts often include provisions addressing acquisitions or divestitures. For example, an EA might state that if the company’s size changes significantly (e.g., more than a 10% user count change due to M&A), Microsoft will work in good faith to adjust the agreement. This ensures the contract reflects the new organization’s reality.
• No automatic transfer: Importantly, software licenses do not automatically transfer just because a business is acquired. They remain bound by the original contract terms until properly reassigned. Assuming “we acquired the company, so we own its licenses” can lead to compliance issues. Instead, you need to actively review and manage these licenses per Microsoft’s rules.

Perpetual vs. Subscription Licenses: What Can Be Transferred?

Not all licenses are equal in an M&A scenario. It’s crucial to distinguish between perpetual licenses and subscription licenses:

• Perpetual Volume Licenses: These are on-premises licenses that the organization owns outright after purchase (e.g., a Windows Server license or Office Professional acquired under a volume agreement). Perpetual licenses are considered assets and can be transferred to a new owner if Microsoft’s conditions are met. In an acquisition, the fully paid, perpetual licenses of the acquired company become the property of the acquiring company.
• Subscription Licenses: These include cloud services (like Microsoft 365 or Dynamics 365 subscriptions), as well as term-based licenses and Software Assurance coverage. Subscription licenses cannot be transferred between organizations. They are tied to the original customer’s account or tenant. For example, Office 365 E3 user licenses in the acquired firm’s tenant can’t simply move to the acquirer’s tenant. The acquiring company will need to plan for a tenant migration or continue running the subscription separately until consolidation is complete. Likewise, Software Assurance (SA) benefits do not carry over to a new owner – SA is a subscription add-on, so only the underlying perpetual license (if any) can be transferred, not the support or upgrade entitlement.
• Enterprise Subscription Agreements: If the acquired company was on an Enterprise Subscription (a type of EA where licenses aren’t owned but “rented”), those licenses have no perpetual rights to transfer. The only way to make them transferable is if the original company executed a buy-out for those licenses at the end of the term (converting them into perpetual licenses). Without a buy-out, an EA Subscription’s licenses simply end if the contract ends, and they can’t be reassigned to the new entity.

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

License Transfer Eligibility by Type – Which licenses can move in an M&A?

Microsoft’s Rules for Volume License Transfers

Microsoft imposes strict rules on transferring licenses to prevent unauthorized resale.

In the context of a legitimate M&A scenario, these are the key rules and limitations:

• “Fully Paid” Golden Rule: Microsoft only allows transfers of fully paid perpetual licenses. In other words, you cannot transfer any license still on a payment or subscription basis. The license must be owned outright by the selling entity. This rules out active subscriptions or unpaid installments.
• Allowed Scenarios: Volume license transfers are pre-approved only for specific scenarios, namely mergers, acquisitions, consolidations, divestitures, or internal corporate restructurings where assets are transferred to an affiliate. Transfers to an unaffiliated third party (outside of selling that part of the business) are generally not allowed. If Company A acquires Company B (making B an affiliate or part of A), Microsoft considers that an acceptable scenario to transfer B’s licenses to A. Similarly, if a company spins off a division as a new entity (divestiture), it may transfer the necessary licenses to that new entity.
• Prohibited/Discouraged Scenarios: Outside of those scenarios, Microsoft’s default stance is non-transferable. If you simply wanted to “sell” surplus licenses to another company without any corporate ownership change, the contract likely forbids it without Microsoft’s explicit consent, which is rarely given. In essence, Microsoft treats any transfer outside of M&A or affiliates as invalid unless they explicitly approve it (and they seldom do, as they prefer selling new licenses).
• Affiliate Transfers: Within the same corporate family (parent and subsidiaries), many Microsoft agreements permit license sharing or transfers under certain conditions. For example, an Enterprise Agreement often covers a defined list of affiliates. If an acquired company becomes a subsidiary, its licenses could be absorbed under the parent’s license umbrella. Enterprise Agreements and select customers typically do not require Microsoft’s prior approval for transfers during mergers or consolidations, as the contract language already allows it. However, notification is still required (for record-keeping and legal clarity).
• Transfer Must Be Documented: Even when a transfer is allowed, it isn’t automatic. Microsoft requires that the original license owner notify Microsoft in writing by submitting a License Transfer Form. Without this formal notification, a transfer is not legally effective. Essentially, if you don’t fill out the paperwork, Microsoft will consider the licenses as still belonging to the seller (and the buyer using them would technically be unlicensed).

Read Microsoft Licensing in Mergers: Consolidating Microsoft 365 Tenants Without Double Licensing.

The License Transfer Process After Acquisition

Transferring Microsoft volume licenses after an acquisition involves a formal process. CIOs/CTOs should ensure their teams follow these steps to stay compliant:

1. Inventory the Licenses: Begin with a thorough inventory of the acquired company’s software licenses. Identify all Microsoft products and how they were licensed – via Enterprise Agreement, Open License, Cloud subscriptions, OEM, etc. Pay special attention to which licenses are perpetual (for example, a Windows Server Datacenter license under an EA or Open License program) versus subscriptions (such as Microsoft 365 seats or Azure subscriptions).
2. Determine Eligibility: For each license, determine if it’s eligible for transfer. Perpetual volume licenses are added to the “can transfer” list. Exclude any subscription-based items, as they will require separate handling (such as migration or new purchases). If a license has active Software Assurance, note that the underlying license can transfer, but the SA coverage will not.
3. Complete the Perpetual License Transfer Form: Microsoft provides a standard form (often titled “Perpetual License Transfer Request”) to formalize the transfer. You will list the specific licenses (product, quantity, and license agreement details) being transferred and identify the seller and the acquirer (the new owner entity). This form is typically available through Microsoft Volume Licensing service centers or via your Microsoft reseller.
4. Submit to Microsoft for Acknowledgment: Send the completed form to Microsoft (usually through your reseller or Microsoft account manager). In the case of an M&A transfer, Microsoft’s role is to acknowledge the transfer. For allowable scenarios, Microsoft doesn’t need to “approve” in the sense of making a decision – the approval is generally given as long as it’s a valid M&A situation – but they will officially record the transfer if properly notified. Microsoft will return a countersigned acknowledgment or confirmation notice.
5. Retain Documentation: Keep the signed form or confirmation letter in your records for future reference. Microsoft’s systems (such as the Volume Licensing Service Center portal) will not automatically update to show that those licenses now belong under the new company’s account. Often, the licenses remain listed under the original entity in Microsoft’s portal, which can confuse later. Therefore, it’s the acquiring organization’s responsibility to maintain proof that licenses were transferred. Keep copies of license agreements, purchase records, and the transfer documentation in a central repository.
6. Implement in IT Asset Records: Update your internal software asset management system to reflect that the acquired licenses are now part of your entitlement. This helps in compliance tracking and during any future audits or true-ups. You may also consolidate license keys or migrate software to standardized images as needed, knowing that the transfer is licensed.
7. Plan for Non-Transferable Items: In parallel, devise a plan for the items that couldn’t be transferred. For example, if the acquired firm had a separate Office 365 tenant with 200 users, decide how and when to migrate those users to your company’s tenant and subscription. Coordinate with Microsoft to adjust any subscription end-dates or potentially co-term new subscriptions. Similarly, if any on-premises licenses were not transferable (e.g., an Enterprise Subscription for a product), engage your Microsoft representative about a path forward – possibly a buy-out or new licenses for your organization.

Following the above process ensures that the license transfer is legally valid and cleanly documented. It’s wise to initiate this process soon after the deal closure (or even as part of integration planning) so that there’s no gap in licensing coverage during the transition.

Pitfalls, Risks, and Cost Implications

Failing to handle licensing transfers properly during M&A can result in significant risks and costs:

• Compliance Risk and Audits: Mergers often trigger software audits or “license compliance checks.” Microsoft recognizes that companies undergoing mergers and acquisitions (M&A) may inadvertently overuse licenses or use them improperly without proper transfer. If you skip the transfer paperwork and start using the acquired licenses immediately, an audit could deem your organization as unlicensed for those installations. This can result in hefty penalties or the forced purchase of new licenses under duress. For instance, if 100 un-transferred Windows Server licenses are currently running in production, Microsoft could demand that the new owner purchase 100 new licenses – an unplanned expense potentially in the hundreds of thousands of dollars.
• Unbudgeted Licensing Costs: A common surprise is discovering that certain acquired licenses can’t be reused. For example, Company B might have relied entirely on Office 365 subscriptions through a separate contract. After the acquisition, Company A cannot merge those subscriptions into its own agreement immediately – they might have to double-pay for a period or invest in new licenses to move B’s users onto A’s tenant. These overlaps and re-purchases create unbudgeted costs. A lack of license transfer can also nullify prepaid value – e.g., if Company B had prepaid multi-year Software Assurance on some products. Still, those benefits can’t transfer, that investment has no value.
• Redundant or Duplicate Licenses: M&A often results in overlapping software. Without a review, the combined entity might be paying for two sets of licenses for the same product. For example, both companies might have licenses for CRM software – post-merger, you might standardize on one and eliminate the need for the other. Identifying such redundancy is key. In some cases, you might be able to transfer or repurpose redundant licenses elsewhere in the organization. In others (like duplicate cloud subscriptions), you should promptly cancel the extraneous ones to save costs. Negotiation tip: If the merged organization’s headcount or usage now qualifies for a higher volume discount tier, bring that up during your next Microsoft licensing renewal – it could reduce costs going forward.
• Contractual Snags: Pay attention to contract terms, such as “future affiliates” clauses. Some Microsoft agreements automatically bind new affiliates to the same terms. This could mean the acquired entity’s users must be counted in a true-up under the acquirer’s EA, potentially increasing costs. Alternatively, if the acquired company had special pricing or a different renewal timeline, you may need to reconcile these differences. Engaging Microsoft early to align contract timelines or to absorb the acquired licenses into a unified agreement can prevent later confusion.
• Timing and Operational Disruption: License transfers are often paperwork-intensive, and delays can occur. If there is a slow turnaround on Microsoft’s acknowledgment, ensure you have interim arrangements (e.g., an explicit written assurance from the seller that you have the right to use the software pending transfer). In cloud migrations, careful timing is crucial to prevent users from losing access. All of these tasks require coordination between IT, legal, and procurement teams during the hectic post-merger integration phase. Neglecting them can cause operational hiccups or rushed, costly fixes later.

Overall, being proactive with Microsoft licensing during M&A is not just about avoiding risk – it’s about maximizing the value of the assets you’re acquiring.

Properly transferred licenses can save the new organization significant money (versus buying new licenses), while clear compliance assures that the technology integration proceeds without vendor trouble.

Recommendations

• Audit All Software Assets Early: Conduct a software license audit during due diligence or immediately after an acquisition. Identify what Microsoft licenses the target company owns, how they were purchased, and which are perpetual vs. subscription.
• Engage a Licensing Expert: Involve a Microsoft licensing specialist or your Microsoft account representative as soon as M&A plans are underway. They can clarify contract terms and provide guidance on merging agreements or transferring licenses properly.
• Use the Official Transfer Process: Always submit the Microsoft Perpetual License Transfer Form for eligible licenses in an M&A transaction. Do this promptly – ideally timed with the legal close of the acquisition – so that there is written acknowledgment of the transfers for your records.
• Retain and Consolidate Documentation: Keep proof of ownership and transfer for all licenses. Ensure that license certificates, purchase records, and Microsoft’s transfer confirmations are stored in a central repository accessible to your asset management and compliance teams.
• Plan for Non-Transferable Licenses: For any licenses that cannot be transferred (e.g., cloud subscriptions), create a plan. This could mean scheduling a tenant migration for cloud services, budgeting for new licenses under your own agreements, or negotiating a short-term coexistence of contracts until you can consolidate.
• Align Contracts and Renewals: If both companies have Microsoft agreements (like two EAs or volume license contracts), work with Microsoft to align them. You might consider consolidating at the next renewal or negotiating a new agreement that covers the combined entity to leverage better pricing and eliminate overlap.
• Monitor Compliance During Integration: As you integrate IT systems, track license usage against entitlements. Ensure that any new deployments (for example, rolling out your standard image to acquired machines) are covered either by transferred licenses or your existing licenses, to avoid accidental over-deployment.
• Prepare for an Audit: Given the high chance of an audit post-M&A, do an internal true-up. Resolve any discrepancies yourself before Microsoft’s auditors do. This includes verifying that all users and devices are accounted for under the correct licenses after the merger.
• Educate the IT and Procurement Teams: Make sure those managing software and purchases in the new merged environment understand these licensing rules. Simple awareness can prevent someone from reallocating a license incorrectly or assuming software is free to use.

FAQ

Q1. Can we transfer all the Microsoft software licenses from the company we acquired?
A: Not all licenses can be transferred. You can transfer perpetual volume licenses (on-premises licenses that have been fully purchased) from the acquired company to your organization using Microsoft’s official transfer process. However, subscription-based licenses (like Office 365/Microsoft 365 subscriptions, Azure subscriptions, or any license paid regularly) cannot be directly transferred to a new entity. Those will typically need to be handled by moving users to your own subscriptions or keeping the acquired company’s subscription active until you transition.

Q2. What is the process to officially transfer volume licenses after an acquisition?
A: The process involves filling out Microsoft’s Perpetual License Transfer Form, which lists the specific licenses being transferred and names both the seller and the acquirer. You then submit this form to Microsoft (usually via your reseller or account manager). Microsoft will acknowledge the transfer in writing. It’s essential to do this for any allowable license transfers, as it legally documents that the licenses now belong to the new owner. Without this step, the transfer isn’t recognized. Always retain the signed form or confirmation from Microsoft as evidence in case of any future audits or questions.

Q3. How should we handle Office 365 or other cloud-based licenses during mergers and acquisitions (M&A)?
A: Cloud subscriptions like Microsoft 365 (Office 365) are tied to the original organization’s tenant and agreement. They cannot be transferred in the way a perpetual license can. To integrate these services, you have a few options:

• Keep the acquired company’s cloud tenant running temporarily and maintain those subscriptions separately while you plan a migration.
• Migrate users from the acquired tenant into your company’s tenant. This typically involves setting up accounts in your tenant, migrating data (such as email and files), and then assigning your own Microsoft 365 licenses to those users. Once complete, you would discontinue (or not renew) the old organization’s subscriptions.
• Coordinate with Microsoft on timing if both companies have enterprise agreements for cloud services. Sometimes Microsoft can help co-term or transition subscriptions at renewal, but it still isn’t a direct transfer of licenses. It’s essentially starting new subscriptions under your organization and ending the old ones.
  In short, plan for a tenant migration and expect to provision new cloud licenses for the acquired users, since you can’t just move the existing licenses over.

Q4. Do we need to inform Microsoft about the merger or acquisition regarding our licenses?
A: Yes, it’s advisable on multiple fronts. First, for any perpetual licenses you’re transferring, you must inform Microsoft by submitting the transfer form – this is a contractual requirement. Beyond that, it’s wise to proactively reach out to your Microsoft account manager about the M&A. They can guide you on how to handle ongoing contracts (such as an Enterprise Agreement) that may be affected by changes in company size or structure. They may help consolidate agreements or adjust terms so that you remain compliant. Early communication can also sometimes provide flexibility – Microsoft might offer grace periods or solutions during the integration period. Remember that if you don’t inform Microsoft and later they discover unreported changes (for example, your EA’s user count suddenly jumps due to an acquisition), it could trigger compliance reviews. Transparency up front often makes the process smoother and keeps you in good standing.

Q5. What are the consequences if we don’t properly transfer licenses or address licensing in the acquisition?
A: The consequences can be serious:

• Compliance Penalties: If you use software without having properly transferred or licensed it, your company is technically unlicensed for that software. In a vendor audit, Microsoft could issue a bill for all unlicensed usage, often at full list prices and sometimes with back-dated fees. This could mean paying a large sum that wasn’t budgeted.
• Legal Risks: Software licenses are legal contracts. Using software beyond the scope of your license rights (even unintentionally, as in an acquisition scenario) can put you in breach of contract. This could potentially lead to legal disputes or settlement costs.
• Operational Disruption: In the worst-case scenario, if a compliance issue isn’t resolved amicably, Microsoft may suspend services or support. While rare, imagine if you’re in a dispute over whether you have the right to use certain software – it’s a distraction and could slow down the IT integration or projects.
• Financial Waste: On the other side, if you fail to recognize licenses that could have been transferred and instead purchase new ones, you’re wasting money. Many companies have spent tens of thousands or more buying software they already had the rights to, simply because they didn’t go through the necessary paperwork to transfer those rights.
  In summary, failing to address licensing properly can result in multiple costs – it’s far cheaper and safer to handle the transfer process and compliance checks during the M&A integration.

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