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

Microsoft Licensing in M&A: Consolidating Microsoft 365 Tenants

Merging two Microsoft 365 (Office 365) environments after a merger or acquisition poses unique licensing challenges. Organizations must consolidate tenants without incurring duplicate license costs during the transition.

A successful strategy minimizes overlapping license costs, aligns contracts, and leverages flexible licensing options to optimize efficiency. CIOs and CTOs should plan carefully to avoid double-paying for users and ensure compliance throughout the migration.

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

The Tenant Consolidation Challenge

In an M&A scenario, two companies often have separate Microsoft 365 tenants (cloud environments), each with their licenses and subscriptions. Tenant consolidation means moving all users and services into a single Microsoft 365 tenant for the unified company.

This simplifies administration and improves collaboration, but it’s complex and high-stakes. Key issues include migrating data safely, integrating identities, and aligning different IT policies.

Crucially, Microsoft licensing becomes tricky: licenses cannot simply be “merged,” and users may end up with accounts in both environments during the transition.

When consolidating, it’s important to remember:

• Licenses are tied to a tenant ID – you cannot transfer cloud subscription licenses directly between tenants. Each tenant requires its subscriptions for users.
• During migration, users might need access in both old and new tenants, creating a risk of duplicate licensing for the same person.
• Microsoft Enterprise Agreements (EAs) and other contracts were negotiated separately by each company; combining them raises contractual considerations (terms, discounts, and commitments).
• Overlapping services (e.g., both companies have email, SharePoint, and Teams) need rationalization to avoid paying twice for the same capabilities.

In short, merging Microsoft 365 tenants can improve productivity long-term, but without careful planning, it can lead to excess licensing costs and compliance issues in the short term.

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

Licensing Challenges in M&A Migrations

M&A-driven tenant merges bring several licensing challenges that CIOs/CTOs must address upfront:

• Double Licensing: If an employee from the acquired company is assigned a new account in the parent company’s tenant (for email, Teams, etc.) while maintaining their original account during the transition, that user effectively requires two licenses. For example, an employee might temporarily consume two Microsoft 365 E3 licenses – one in each tenant – until cutover is complete. This double licensing drives up costs quickly.
• No License Portability: Microsoft 365 subscription licenses (such as Office 365 E3/E5, EMS, etc.) cannot be transferred between tenants mid-term. They are bound to the original tenant. Even if Company A has spare licenses, it cannot assign them to users in Company B’s tenant; those users must be in Company A’s tenant to use Company A’s licenses. Similarly, unused licenses in the acquired tenant can’t simply be “given” to the new tenant – they typically go unused until expiry if not needed.
• Contract Commitments: Each organization likely has a licensing agreement (Enterprise Agreement, CSP subscriptions, or Microsoft Customer Agreement). These contracts have commitments (e.g., a 3-year EA with fixed quantities, or annual CSP subscriptions under the new commerce model). After a merger, some licenses may become redundant, but under contract, you might still be obligated to pay for them. For instance, if Company B had an EA with 500 Office 365 E3 seats running until 2026, and those users move to Company A’s tenant in 2025, Company B’s EA might not allow cancellation of the 500 seats until the EA term ends, meaning paying for unused licenses.
• Different Licensing Models: One company may license via an Enterprise Agreement (with volume discounts and a three-year term), while the other uses a Cloud Solution Provider (CSP) with monthly flexibility. Reconciling these models is challenging. The acquired organization might be mid-term in an EA or subscription, and the timing can conflict with the consolidation timeline. A rigid EA can make it harder to quickly reduce licenses, whereas CSP is more flexible but possibly pricier per unit. Choosing how to license the combined entity during the transition is a strategic decision.
• Compliance and Audit Risk: Mergers often attract scrutiny from vendors. Microsoft may initiate a licensing audit, knowing that environments are in flux. Compliance risks include inadvertently using software without proper licensing (for example, copying data to the new tenant before assigning licenses or continuing to use retired licenses). There’s also a risk of license overlap where you pay for more licenses than you use post-consolidation if you don’t true-up/down promptly. All these can lead to unbudgeted true-up costs or penalties if not managed.
• User Impact: While not a direct financial cost, having two accounts per user (one in each tenant), even temporarily, can confuse employees and impact productivity. It’s a human factor to manage, but solving it quickly also has licensing implications (you want to turn off the old account/license as soon as feasible).

In summary, the primary licensing implication of merging tenants is the potential for overlapping subscriptions and contractual rigidity, which can result in paying double for the same employees or services.

Minimizing Double Licensing During Migration

Avoiding double costs requires proactive planning. Here are strategies to avoid paying for two licenses per user during the transition period:

• Accelerate the Migration Timeline: The shorter the overlap, the less you’ll pay double. Aim for a swift but safe migration schedule. If possible, perform a “big bang” migration over a weekend or a series of rapid phases, allowing users to quickly switch entirely to the new tenant. Each user should ideally only be licensed in both tenants for a minimal time (days or weeks, not months). A well-planned cutover, accompanied by extensive preparation work, can shorten the coexistence period.
• Leverage Grace Periods and Trials: Microsoft provides a short grace period after a subscription is canceled or expires, often 30 days, where services still function. You can use this window smartly. For example, you might remove licenses from the source tenant at the start of a 30-day grace period while the user’s data is migrated and their new account is already live in the target tenant. If you complete the migration within those 30 days, the user experiences no loss of service, and you avoid paying for a redundant month. Additionally, many Microsoft 365 plans have a one-month free trial option (or can be extended via your reseller). During a tenant-to-tenant migration, you could activate a trial in the target tenant for a group of users instead of immediately buying extra licenses. As long as you finish migration before the trial ends, you won’t incur additional licensing charges. These tactics require careful timing but can eliminate a month or so of double licensing fees.
• Use Microsoft’s Cross-Tenant Migration Tool: Microsoft now offers a native Cross-Tenant Migration feature for Exchange Online mailboxes and OneDrive data. Additionally, a special one-time migration license (approximately $10–$15 per user) is available, which grants a 180-day period to migrate a user’s mailbox to a new tenant without requiring two full licenses. Essentially, you purchase a temporary migration license per user, and Microsoft gives you up to 6 months to complete the move. During that time, the user can exist in both tenants for email purposes without double billing on the normal subscriptions. After 180 days, any user who has not fully moved will require a regular license in the new tenant, so the clock is ticking. This approach is particularly useful for email/data migration and can drastically cut costs compared to paying for 6 months of an Office 365 seat twice. It’s important to arrange these migration licenses with your Microsoft account rep, as they may not be available through self-service.
• Stagger License Decommissioning: If a phased migration is necessary (e.g., moving departments over in waves), align license removal with each wave. For instance, once a batch of users has been fully migrated to the new tenant and is comfortably using it, immediately de-provision their licenses in the old tenant. Don’t wait until the entire project ends. By continually harvesting and removing redundant licenses as you progress, you’ll reduce the overlap duration for each user group. This requires tracking who has moved and revoking their old access promptly. Some organizations set up an automated process to remove an old license as soon as a user has been confirmed migrated.
• Coordinate Renewal Dates: Look at the billing cycles or EA anniversary dates of the acquired company’s subscriptions. Try to schedule the consolidation around those dates. For example, if Company B’s Office 365 licenses are up for renewal in December, plan to migrate users by November so you can avoid renewing those licenses for another year. Conversely, if the renewal has just passed, you might negotiate a shorter term or cancellation. Microsoft’s licensing programs sometimes allow pro-rated cancellations within a brief window (like CSP’s 7-day cancellation for annual subscriptions, or certain early termination clauses in enterprise contracts for M&A situations). Use those options to your advantage – essentially, time the tenant merge to coincide with natural contract endpoints to avoid paying beyond what’s needed.
• Utilize Temporary Licenses or Spare Capacity: In some cases, the acquiring organization may have spare licenses available. For example, Company A might have purchased more licenses than in use (perhaps for growth headroom). During migration, that spare capacity in the target tenant can cover incoming users without new purchases. Meanwhile, Company B might be able to reduce its license count (if on a flexible model) as users leave its tenant. Also, consider if any users can be moved to less expensive licenses temporarily. For instance, if a user only needs email during the transition, maybe assign just an Exchange Online Plan license in one of the tenants rather than a full suite license in both. This kind of creative license allocation can trim costs.
• Cross-Tenant Collaboration as a Stopgap: As an alternative to an immediate tenant merge, Microsoft 365 supports cross-tenant collaboration (using Azure AD B2B and guest access). In an M&A, if time or budget constraints prevent a quick merge, you could allow users in one tenant to access resources in the other as guests for a period. This way, you can maintain separate tenants for a bit longer, but avoid duplicating accounts for each user. Each user stays licensed only in their original tenant and is invited to teams or SharePoint of the other. This approach has drawbacks (added admin overhead, some features not working across tenants). However, it can delay or even eliminate the need for double licensing while still enabling cooperation between the workforces. Essentially, it buys time to consolidate without rushing into duplicate subscriptions. However, this is a short-term workaround; in the long term, a full consolidation yields better efficiency.

By applying a combination of these strategies, companies can dramatically reduce duplicate licensing costs during an M&A migration.

For example, consider a real-world scenario: A company with 500 users was acquired and migrated over a period of 3 months. Initially, this would imply 500 extra Office 365 E3 licenses for 3 months.

At roughly $30 per user per month, that’s about $45,000 in overlap costs. But by using 1-month trials for half the users and completing each phase in under a month, the IT team cut the overlap to just one month for most, saving tens of thousands of dollars. The key is proactive management of licensing throughout the project.

EA vs CSP: Choosing the Right Licensing Model for Transition

One critical decision is whether to stick with existing Enterprise Agreements (EA) or shift to a more flexible model like the Cloud Solution Provider (CSP) program during the integration period. Each has pros and cons:

Enterprise Agreement (EA) – This is a volume licensing contract, typically with a with a 3-year term, often offering significant discounts (especially for large “Level C/D” customers). If both companies have EAs, merging eventually into one EA could preserve discounts.

The benefits of renewing or maintaining an EA in an M&A context include locked-in pricing (which may be lower per seat than month-to-month rates) and retention of Software Assurance benefits for any on-premises software.

However, EAs are inflexible during their term:

• You usually cannot reduce the number of licenses until the end of the yearly cycle (or often only at the 3-year renewal). After a merger, you may have more licenses than needed once IT environments are combined (e.g., duplicate systems are retired), resulting in wasted spend.
• Committing to a fresh 3-year EA during a merger is risky – your user count and needs are in flux. You may end up paying for “phantom” users or services that are dropped after integration.
• Microsoft has a clause stating that if a merger or acquisition changes license quantity by more than 10%, they will work in good faith to accommodate the changes. In practice, you could negotiate a one-year “bridge” EA or an extended agreement that aligns with your M&A timeline. For example, if Company B’s EA is ending, instead of a full 3-year renewal, request a 1-year renewal just to cover the transition. Microsoft reps, when aware of the merger timeline, can sometimes provide custom terms, such as the ability to adjust quantities mid-term or a shorter commitment, but you must push for it. The bottom line: an EA can still work if you negotiate flexibility (bridge terms, early termination clauses, etc.) in light of the merger.

Cloud Solution Provider (CSP) – This model (or the newer Microsoft Customer Agreement) allows you to buy Microsoft 365 licenses on a subscription basis, often month-to-month or annually, through a reseller.

The major advantage in an M&A context is agility:

• You can increase or decrease license counts every month (for month-to-month subscriptions) or at least annually with minimal commitment. This means you pay only for what you use, which is ideal when you know usage will drop as two organizations unify.
• CSP works well with tenant-to-tenant migrations – you can ramp up licenses in the target tenant as needed and ramp down in the source tenant without complex contract implications.
• The trade-off is cost: CSP per-user prices can be slightly higher than a deeply discounted EA price. For instance, Microsoft 365 E3 might be ~$34 per user/month via CSP vs maybe ~$30 on a large EA. Over thousands of users, that difference adds up. However, paying a bit more per seat for 12–18 months might be worth it if it prevents the need to pay for 24+ months of unused licenses on an EA.

In many merger cases, companies opt for a temporary CSP approach during the integration period.

They’ll let one company’s EA lapse or not renew it, move those users onto CSP licensing in the new tenant for the next year or so, and once the dust settles and the user count stabilizes, then negotiate a new combined EA for the whole firm.

This way, they avoid locking into a long deal while so much change is happening. Flexibility is maximized – you can turn down quickly as redundancies are eliminated, and scale up or down with minimal penalty.

Consider a comparison of options for the acquired environment during migration:

In practice, bridging the gap is key. If you have advantageous EA pricing (say a Level D discount of 15-20% off), you might not want to jump entirely to CSP and pay retail for a long time.

In that case, ask Microsoft for a custom bridge EA: e.g., a 12-month extension instead of 36, or the right to reduce licenses after the first year once you’ve integrated. Microsoft has been known to accommodate large customers in M&A by adjusting agreement terms (they’d rather keep you on an EA long-term, so they might offer concessions to not lose you to CSP).

Always communicate your merger timelines to your Microsoft account team – they may offer promotional pricing or flexibility if they know a big consolidation (and future big renewal) is on the horizon.

On the other hand, if neither company’s contract is particularly great (or one is expiring), CSP’s freedom can save money overall. The ability to drop, say, 500 redundant licenses in month 4 of the merger, instead of paying for them for 2 more years, could overshadow the per-seat savings of an EA.

Do the math for your scenario: sometimes paying $5 more per user for 1 year in CSP is far cheaper than paying $30 per user for an extra 2 years for people who won’t even be there.

Finally, consider timing for a new combined EA. Post-merger, once you have one tenant and a clear view of total users and usage, you can negotiate a fresh Enterprise Agreement that covers the whole business.

At that point, you can leverage the increased combined seat count to get better pricing tiers. Until then, avoid locking into a long contract that might not fit the merged organization’s actual needs.

Aligning Contracts and Ensuring Compliance

M&A license consolidation isn’t just about tech – it’s also about legal contracts and compliance oversight:

• Review All Licensing Contracts: Gather and review both companies’ Microsoft contracts, including Enterprise Agreements, Microsoft Products & Services Agreements (MPSA), cloud subscriptions, and other relevant agreements. Understand the fine print on mergers. Microsoft’s Business and Services Agreement (MBSA) defines affiliates and might allow an acquired entity to be treated as an affiliate for licensing purposes once you own >50%. This could open options, such as moving them under your EA enrollment (with Microsoft’s approval). Also, check if either contract had special concessions or unique terms – you’d want those carried into any new agreement. If both companies offer price protections or special discounts, aim to incorporate the best of both into the new deal.
• License Transfer Rights: Generally, perpetual licenses (like on-premises Windows/Office licenses) can be transferred to the new company as part of the merger (usually by completing a transfer form for Microsoft). However, subscription licenses (cloud services) cannot be transferred – you can’t reassign an Office 365 subscription to a new entity. Identify which assets are perpetual versus subscription-based. For example, if the acquired firm had some on-premises server licenses with Software Assurance, those could be transferred legally. But their Office 365 E5 subscriptions cannot – those will need to be re-procured in the new structure.
• True-Ups and True-Downs: Plan for true-up costs if adding users to an EA and true-down or termination costs if dropping. If Company A adds all Company B users to its EA mid-term, that will trigger a true-up (additional cost) at the next anniversary. Budget for it. Conversely, if Company B’s contract is being ramped down, ensure you perform the true-down at the earliest opportunity to stop charges. Be aware of any early termination fees. Under newer CSP/NCE subscriptions, if you cancel an annual subscription early, you may owe a penalty (often equal to the remaining months’ fees). Sometimes in a merger, Microsoft might waive certain fees if you’re moving to a different Microsoft agreement – but get that in writing. Every license SKU needs a home or a plan: either it’s continuing in the new world or it’s retired – map these out to avoid paying in limbo.
• Audit-Proofing the Transition: Perform an internal Effective License Position (ELP) as soon as possible. Essentially, do a self-audit of both environments – how many licenses do we have, what products, and how many are actually in use? Identify any compliance gaps (e.g., are there users using Visio or Project in Company B without proper licenses? Did either org already have compliance issues that might be inherited?). Fix those proactively. Microsoft often initiates audits after major business changes, so being prepared is crucial. Retain documentation of everything: license purchase records from the acquired company, any transfer forms, screenshots of license assignments, etc., in case you need to prove compliance. During the migration, track license assignment closely – for instance, if you use a trial or grace period as discussed, document which users were covered under which license at all times. This prevents any accidental period where a user might not be licensed (even briefly), which could be a compliance issue.
• Security and Data Residency Considerations: While not licensing per se, sometimes regulatory or data residency needs might require keeping two tenants for a while (e.g., if data must stay in a certain geography). In such cases, factor in the cost of parallel licenses versus alternative solutions. If truly both tenants must run long-term (which is rare for a complete merger), you may need to maintain licensing in both and find other cost offsets. More commonly, you’ll consolidate, but be careful about features like eDiscovery and compliance archives, ensuring they carry over so you don’t have to keep an old system licensed just for historical data access. Microsoft’s Compliance Center content can be exported or imported as needed; plan accordingly so you can confidently shut off old licenses.
• Communication with Microsoft: Engage Microsoft or your licensing partner early about the merger. There is a balance here: you want information, but you also want to negotiate effectively. Microsoft’s sales team will be keen to sell additional licenses or a new agreement. Come to the table with a plan (possibly after consulting an independent licensing advisor). Ask about merger transition support – Microsoft may offer a tailored plan, such as extended trial licenses or aligning billing dates. Ensure any promises (like “we’ll allow you to terminate that EA early without penalty”) are documented. If possible, obtain a written confirmation from Microsoft regarding their commitment to accommodating the merger. This can be important if staff changes or an audit occurs down the line.
• Rightsizing Post-Merger: After consolidation, don’t assume the job is done. Immediately optimize the new single tenant’s licensing. Often, you’ll discover overlapping tools – for example, each company might have had a separate Power BI Pro subscription for the same user, or one had a third-party solution that is replaced by a feature in Microsoft 365 E5. Eliminate redundant subscriptions and excess licenses within the unified tenant. Implement ongoing license management (some organizations use tools or managed services to continuously monitor inactive or unassigned licenses). This “rightsizing” ensures the combined entity isn’t carrying the bloat of two license estates. It also positions you well for the next renewal negotiation – you’ll know exactly what you need (and don’t need) to pay for.

By aligning contracts and focusing on compliance, you reduce risk and set the stage for cost-efficient operations in the future.

The goal is to emerge from the M&A with one set of licenses, fully utilized, under a contract that suits the new business, with no loose ends from the old entities.

Real-World Example: Cost Implications of Overlapping Licenses

To illustrate the stakes, consider a hypothetical scenario:

Scenario: Company A (1000 users) acquires Company B (600 users). Both use Microsoft 365. Company A has an EA with Microsoft 365 E3 at a discounted rate of $30 per user per month (list price: approximately $34). Company B was on a CSP annual subscription for Microsoft 365 E3 at $34 per user per month (no volume discount). The plan is to consolidate into Company A’s tenant over a period of six months.

If no special actions are taken,

Company B’s 600 users would be added to Company A’s tenant immediately for access, requiring 600 new E3 licenses on A’s side. However, Company B’s tenant and licenses would also remain active until the migration is complete (to ensure their services continue to run). For those 6 months, each of the 600 employees has two E3 licenses.

The cost:

• Company A’s EA: +600 users * $30 * 6 months = $108,000 (true-up cost for half-year)
• Company B’s CSP: 600 users * $34 * 6 months = $122,400 (already pre-paid or committed)
• The overlap cost total = $230,400 for half a year of redundancy.

That is effectively wasted spend – paying twice for the same productivity services for those employees. Beyond the dollars, this is the kind of inefficiency CFOs and boards hate to see in an integration.

Using a smarter approach: The IT team decides to break the migration into two big waves of 300 users each, one in 3 months and one in 6 months. They negotiate with Microsoft to add 300 temporary CSP licenses to Company A’s tenant for 3 months (for Wave 1) instead of immediately doing a full EA true-up, and use available spare licenses for a few users.

They also schedule Company B’s CSP to not auto-renew after month 3 for those Wave 1 users.

• For Wave 1 (300 users): For months 1-3, they pay an extra 300*$34 = $30,600 on the Company A side via CSP. Company B’s side for those users is covered since the annual fee was paid, but they manage to get a prorated refund for the unused 6 months for those 300 (not always possible, but assume negotiation succeeded or they align it with renewal). After 3 months, Company B drops those 300 licenses (saving the remaining 3 months of cost ~$30,600) and Company A continues to cover them. The net overlap for these 300 was essentially 3 months on one side only.
• For Wave 2 (remaining 300 users): They utilize the cross-tenant migration license for Exchange. For $11 per user, totaling $3,300, Microsoft gives them 6 months to migrate mailboxes. They delay purchasing full licenses in the Company A tenant for these users until the actual cutover at month 6. For months 1-5, these 300 users remain on Company B’s paid licenses; at month 6, they switch to Company A’s. The cost overlap here is minimal – just the $3,300 migration fee and one month of double licenses during the final cutover.
• Company B’s CSP admin also uses the 30-day grace period trick for a handful of users to shave off another month of duplicate payment.

Ultimately, the total overlap spend may be reduced to, say, $50,000 instead of $230,000. That’s a savings of ~$180,000 by using flexible licensing and timing.

This example demonstrates why CIOs must pay attention to licensing during M&A – the dollars are significant, and a smart licensing strategy directly translates to real cost savings in the integration budget.

Recommendations

Practical steps for CIOs/CTOs to manage Microsoft licensing through an M&A tenant consolidation:

• Start with a License Inventory & Audit: Immediately inventory all Microsoft 365 licenses and contracts in both organizations. Identify overlapping subscriptions, unused licenses, and contract end dates. This baseline will guide your consolidation plan and reveal quick-win cost savings (e.g., cancelling truly redundant subscriptions).
• Coordinate Early with Vendors (but on Your Terms): Engage Microsoft and your licensing partner with a clear plan in place. Inform them of the merger timeline and request any transitional licensing programs (like bridge agreements or trial extensions). At the same time, be cautious about sales pitches – gather information but make decisions based on your analysis. Use Microsoft’s willingness to “work in good faith” to negotiate favorable terms (shorter agreements, flex rights) that align with integration timing.
• Use Flexible Licensing for the Transition: Avoid long commitments during the migration period. Opt for monthly CSP subscriptions or leverage existing spare licenses to handle users being migrated. If you have an EA, see if Microsoft will allow a one-time adjustment or a custom short renewal. The goal is not to over-commit when the user count will fluctuate. Flexibility will save money as you consolidate.
• Minimize Overlap Duration: Plan the technical migration to minimize the duration during which users need to use two accounts. If possible, migrate in as few phases as feasible. Use automation and good project management to execute moves efficiently. Every extra week of slippage is equivalent to a week of double license costs for those users – keep the team focused on the schedule to limit overlap.
• Time Moves with Billing Cycles: Align User Migrations with License Billing Periods. For annual subscriptions, move users just before the next annual renewal so you can cancel in time. For monthly, move them toward the end of the month to avoid another month’s charge. If using grace periods or trials, schedule within those windows. This timing coordination is a simple but effective cost saver.
• Eliminate Redundancies Quickly: As soon as systems or roles are consolidated, eliminate the duplicate license. For example, if you have two separate security add-ons or two backup solutions after merging tenants, choose one and deactivate the other license. Don’t wait until the contract end if it’s not needed – often vendors will allow termination if the product is truly not in use post-merger (or you may accept a one-time cost to get out, which could be cheaper than running it for the full term).
• Maintain Compliance Throughout: Ensure every active user and service has the appropriate license at all times, even during the switch. Use temporary licenses or cover all bases to avoid unlicensed usage. Document all changes. If audited, you want a clean story to show: we had X licenses in the old tenant until this date, then moved to Y licenses in the new tenant – no gaps. This avoids financial penalties and maintains a solid reputation with Microsoft.
• Communicate Changes to Users: While a user-focused step, it’s worth noting that you should also inform employees of what to expect. If they switch to a new login or might lose some access for a short time, clear communication avoids productivity loss. From a licensing view, educated users are less likely to keep using old environments unknowingly (which can lead to needing to keep licenses active). A well-communicated cutover means you can confidently turn off old licenses and accounts on schedule.
• Post-Merger True-Up and Negotiation: After the merger is complete, conduct a comprehensive true-up of licenses in the new environment. Right-size the counts to actual usage. Use this data to negotiate your next enterprise agreement or renewal. Combine the two companies’ purchasing power to get better discounts or more favorable terms. Also, ensure any special conditions either company had (like grandfathered pricing or prior discounts) are negotiated into the new deal if possible.
• Engage Licensing Experts if Needed: M&A licensing can get complex. Consider consulting a software licensing expert or a SAM (Software Asset Management) professional who has experience with M&A scenarios. They can identify pitfalls (like duplicate entitlements or potential audit red flags) that internal teams might miss. Their cost may be easily offset by savings in the new contract or avoidance of compliance issues.

Following these recommendations will help you consolidate Microsoft 365 tenants efficiently while controlling costs. The end goal is a single, optimized Microsoft 365 environment for the new organization, achieved without overspending or compliance headaches during the transition.

FAQ

Q1: Can we transfer or merge Microsoft 365 licenses from the acquired company’s tenant to our tenant?
A1: No – Microsoft 365 cloud licenses are not transferable between tenants. You can’t simply move unused licenses from one Office 365 tenant to another. Each tenant needs its subscriptions. In an M&A, this means you’ll essentially reassign users to licenses in the new (target) tenant and then discontinue the old (source) tenant’s licenses when feasible. The only exceptions are on-premises perpetual licenses, which can be transferred via Microsoft’s process, but for cloud subscriptions, you’ll be procuring fresh licenses in the consolidated tenant.

Q2: How can we avoid paying double licenses when migrating users to a new tenant?
A2: The key is careful timing and using Microsoft’s available grace periods or tools. Ideally, cut over users quickly so their old account can be de-licensed as soon as they have a new account. Use the 30-day post-cancellation grace period – plan the migration such that you cancel the old license, get, for example, 30 days of continued service, and within that time, the user is fully on the new system. Als,o consider using free trials in the target tenant to temporarily cover users instead of buying licenses immediately. Microsoft’s cross-tenant migration add-on for Exchange provides 180 days to migrate mailboxes without requiring full double licensing. In short, shorten the overlap where both licenses are active, and leverage any “free” windows Microsoft provides to cover that overlap.

Q3: Our company has an Enterprise Agreement (EA), and we acquired a company on CSP subscriptions. Should we combine under the EA or keep them separate during the transition?
A3: In many cases, keeping things separate during the initial transition is beneficial. You might consider placing the acquired users on CSP (or leaving them on CSP if they are already there) for flexibility, rather than immediately adding them to your EA. This allows you to avoid long commitments while you’re still determining the combined user count and needs. Once the migration is complete and stable, you can then consolidate everyone into a single EA at the next renewal, using the now larger user base to negotiate favorable pricing. However, if your EA is already up for renewal and offers much better pricing, you could negotiate a short-term EA extension for those new users. The strategy depends on timing and cost – do a cost comparison: sometimes paying a bit more per user for a few months on CSP is cheaper overall than overcommitting on an EA and paying for unused licenses. The general advice: use CSP for agility during integration, then consolidate into an EA for long-term efficiency when ready.

Q4: What if our merger integration takes a year or more? We can’t migrate everything quickly – how do we handle licenses during an extended coexistence period?
A4: If a slow integration is necessary, you have a few options. One option is to utilize cross-tenant collaboration mode (guest access, Azure AD B2B) to enable users to share resources across tenants without requiring two separate accounts. That way, you might not need to license them twice – each user continues using their original tenant account until the final move, but you set up guest access to collaborate. This can buy you time. If you must run two production tenants for a year or more, consider partitioning roles. For example, the acquired team may continue to use their tenant for email but access the parent’s SharePoint as guests, etc., to avoid duplication. In parallel, renegotiate contracts: see if Microsoft will allow a common agreement to cover both entities during the interim, or align renewal dates so you can co-term them. The worst-case scenario is paying for two full sets of licenses for a long period – try to minimize actual parallel use. Also, regularly reevaluate whether you can accelerate any part of the integration. Even if full integration takes a year, perhaps certain services (email or Teams) can merge sooner to drop one set of licenses.

Q5: After consolidation, we ended up with more licenses than users (some of which are now unassigned). Can we get credit or refunds for those extra licenses?
A5: It depends on your contract and timing. If those licenses are under an EA, typically you cannot reduce the count until the next annual true-up cycle or EA renewal – you won’t get a refund for unused licenses mid-term. However, you should report the reduction at the next true-up so you don’t renew them for another year. If they are CSP subscriptions, you can usually reduce the quantity at the next monthly or annual billing interval (with potential small penalties if mid-term on annual). You generally won’t receive a refund for time already committed, but you can prevent future charges.In some cases (especially due to M&A), you can appeal to Microsoft or your reseller for an exception, but those are handled case by case. The best approach is to anticipate this issue and avoid purchasing too many in the first place. In the future

Q6: What should we do with the acquired company’s existing Microsoft contract?
A6: That depends on the type of contract and how it aligns with your company’s plans. If the acquired company has an Enterprise Agreement, determine when it expires and whether you wish to maintain it until then. You might choose to terminate or not renew it and instead bring those users under your terms and conditions. Usually, once acquired users move to your tenant, it makes sense to have a single contract covering everyone to simplify management (i.e., one EA or one set of subscriptions). Check if the EA has a merger clause – often, Microsoft allows an EA to be terminated without penalty if the company ceases to exist as a separate entity (since the new owner would cover them under a different agreement). Engage Microsoft to confirm the process: you may need to senda formal notice of merger and request termination or consolidation of that EA. If the acquired firm was using CSP through a reseller, you can likely simply let those subscriptions expire or cancel them as you transition users to your own CSP or EA. Be careful to coordinate the timing so users are not left without service. Ultimately, within a reasonable time after integration, you should have only one primary Microsoft agreement (plus perhaps some minor ones for special cases) to streamline operations and get the best volume pricing.

Q7: Could Microsoft audit us during or after this merger? How do we avoid any compliance issues?
A7: Yes, software vendors, including Microsoft, closely monitor mergers and acquisitions. A sudden increase or change in usage can trigger an audit, or simply the knowledge that two licensing estates are combining (which historically is a time when compliance can slip). To avoid problems, conduct an internal audit before Microsoft does. Reconcile the licenses owned vs. deployed in both environments. Ensure that all users, servers, and other relevant systems have the proper licenses. If you identify any shortfalls (for instance, the acquired company may have been under-licensed for certain products), remediate them immediately – either by purchasing the necessary licenses or phasing out that usage. During the migration, keep records of license assignments and any decommissions. If Microsoft comes knocking, you want to confidently demonstrate control: show them documentation of how you managed licenses through the transition, how you ended the duplicate licenses promptly, and that at no point were more users using a product than you had rights for. It’s also wise to save proof of purchase for any transferred licenses and any communication with Microsoft about the merger (such as approvals to terminate a contract). By staying on top of compliance internally, you reduce the risk of a formal audit, and if one happens, you’ll be prepared to show compliance or at least good faith efforts, which can lead to a more favorable outcome.

Q8: We have users on different Microsoft 365 plans in each company (one uses E5, the other E3). How do we handle that during consolidation?
A8: This is a great opportunity to rationalize and standardize licenses. First, decide on the unified policy: determine which users truly need the advanced features of E5 and which can use E3. During the migration, you might transition some users to a different SKU. For example, if the acquired company had 100 E5 licenses but you realize that only 50 of those users require E5-level capabilities (such as advanced security and analytics), you could migrate 50 users to E5 in the new tenant and the rest to E3 to save costs. Essentially, don’t automatically mirror the same license type one-for-one if it’s not needed. Utilize the merger to eliminate license creep. Be mindful of data considerations: if downgrading a user from E5 to E3, ensure none of their data or compliance features are lost unexpectedly (you may need to export some logs or data that was available under E5 features). Conversely, if you’re upgrading some users (perhaps the acquired company had services not covered under their plan), coordinate this so they don’t lose functionality. In short, treat it like a re-evaluation of licensing needs. Phase the changes if necessary: Some organizations will temporarily keep everyone on their current level until after the migration for simplicity, and then conduct a second pass to adjust plans once things are stable. Just remember to do that second pass – otherwise, you might continue paying for E5 for people who don’t need it.

Q9: What about other Microsoft services like Azure or Dynamics 365 during an M&A – any similar licensing concerns?
A9: Absolutely, similar principles apply. Azure subscriptions from one tenant can’t be merged into another without a migration or transfer process (although Azure offers some flexibility in transferring subscriptions to a different enrollment, if arranged). You’ll want to consolidate Azure under one enrollment or tenant for cost efficiency, but be cautious with reserved instances or long-term commitments – align these as you did with Office 365 to avoid overlaps. For Dynamics 365 or other Microsoft cloud products, licensing is also tenant-specific. If both companies use Dynamics 365 CRM, for instance, you might merge instances and again face double licensing while the data migrates. The strategy there is to migrate data promptly and retire the redundant instance to stop paying for it. Always check if Microsoft offers any specific merger transition licensing for those products – sometimes they have programs for moving CRM instances or special SKUs for a period. Overall, inventory all Microsoft products in the scope of the merger (Office 365, Azure, Dynamics, Power Platform, etc.). Each will have its licensing nuances, but the core concept is to eliminate duplicate spend as you unite them. If necessary, engage specialists for each major product line to advise on the optimal consolidation approach.

Q10: After the merger, how can we further optimize costs related to Microsoft licensing?
A10: Once you’re operating in one tenant, continue practicing good license hygiene. Use tools or reports to find inactive accounts or unused licenses and re-harvest them (e.g., if someone leaves, remove or reassign their license immediately; don’t let licenses sit unassigned while you’re still paying). Consider implementing group-based licensing or automated workflows to right-size licenses based on roles (ensuring users get the cheapest license that meets their needs). You might also explore Microsoft 365 feature optimizations: for example, if both companies were paying for third-party solutions that Microsoft 365 includes (like a separate enterprise mobility system when M365 E5 includes one), consolidate onto the Microsoft platform and drop the extra vendor, saving money. Keep an eye on new Microsoft licensing programs or changes (Microsoft sometimes introduces new bundles or capabilities, which could better fit your merged organization’s needs). And importantly, prepare for the next renewal well in advance: use your combined usage data to negotiate. If your user count changed significantly post-merger (maybe you downsized overlapping roles or grew in others), ensure your next agreement reflects that new reality, so you’re not over-committed. Many organizations engage in a licensing optimization project 6-12 months after a merger to eliminate any remaining inefficiencies – this could involve switching to a different licensing program (such as from CSP to EA or vice versa) or adjusting the cloud service levels in use. It’s an ongoing process, but with the big merger hurdle crossed, incremental optimizations will further improve your ROI on Microsoft investments.

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