Oracle Licensing in Mergers & Acquisitions – Risks and Opportunities

Oracle Licensing in Mergers & Acquisitions

When companies merge or divest, Oracle software licensing can become a complex and costly challenge. CIOs and CTOs must proactively manage Oracle licenses during mergers and acquisitions (M&A) to ensure compliance with contract terms and avoid unnecessary expenses.

This article explains how mergers and acquisitions impact Oracle licensing, outlines common compliance pitfalls and cost inefficiencies, and provides strategies to maintain compliance and optimize costs during corporate changes.

Oracle Licensing Challenges in M&A

Oracle licenses are tied to specific legal entities. In an M&A scenario, Oracle’s contracts don’t automatically extend to newly merged or acquired companies.

Each Oracle license agreement defines the “customer” (usually the original company and its majority-owned subsidiaries) by name.

If Company A acquires Company B, you cannot assume Oracle licenses can be freely shared across the new combined organization.

For example, if Company B’s employees start using Oracle software under Company A’s licenses (or vice versa) without updating agreements, it may be considered unlicensed use.

Oracle often treats mergers as a contract “assignment” event – essentially a transfer that requires Oracle’s approval.

Nearly all Oracle on-premise licenses include anti-transfer clauses, so Oracle’s consent (in writing) is needed to transfer or consolidate licenses to a different entity.

Failing to address this can result in the combined company being in breach of contract.

Key licensing challenges during M&A include:

• Non-transferable licenses: Oracle’s standard terms prevent transferring licenses between entities without approval. A merger or divestiture can trigger these clauses, meaning the new owner might have to re-purchase licenses if Oracle doesn’t agree to a transfer.
• Different contract terms: Each company may have different Oracle agreements (metrics, usage rights, territory limits). Without alignment, the merged entity could accidentally violate the stricter of the two contracts.
• “Customer” definition: Oracle licenses usually cover only the named licensee and ≥50%-owned subsidiaries. An acquired company might not be covered unless it becomes a majority-owned subsidiary and contracts are updated to include it.
• Change of control: Some Oracle contracts have change-of-control provisions, but many don’t. Always review if there’s a clause that permits license assignment during a merger (and follow any notice requirements exactly). If not, plan to negotiate with Oracle.

Real-world example:

One company merged IT environments, assuming all Oracle licenses would carry over, only to find out that Oracle demanded new licenses for the absorbed systems.

They ended up purchasing additional Oracle licenses (a seven-figure unplanned cost) because the acquired firm’s licenses could not be simply “inherited.”

Such surprises underscore the importance of treating Oracle licensing as a critical component of any merger and acquisition (M&A) due diligence.

Read the CIO Checklist for Oracle Licensing in M&A.

Compliance Risks: Under-Licensing After a Merger

A major risk post-merger is under-licensing, where the combined usage of Oracle software exceeds the entitlements of either company.

This often happens when an acquiring company thinks its existing Oracle licenses cover the acquired business’s usage.

In reality, unless explicitly allowed, Company A’s licenses do not automatically cover Company B’s deployments or users.

If the merged entity deploys Oracle software more broadly or combines systems, it can quickly exceed licensed quantities.

Common scenarios include:

• Higher usage footprint: Integrating IT systems can increase the number of processors running Oracle databases or the number of end-users accessing Oracle applications beyond what was licensed.
• Unintentional access: Employees from one side of the merger start using Oracle-based systems from the other side, unaware that those licenses aren’t cross-licensed.

Oracle audits are likely to occur after M&A events. Oracle’s License Management Services (LMS) closely monitors mergers and acquisitions, knowing these transitions often lead to compliance gaps.

An Oracle audit could reveal that the new organization is using Oracle software without sufficient licenses.

The consequences can be severe: unbudgeted purchase of licenses, backdated support fees (22% of license cost per year for each missing license), and potential legal penalties.

It’s not uncommon for mid-sized firms to face $1–5 million in audit-related costs after an acquisition if under-licensing isn’t addressed.

In one case, Oracle identified a compliance gap after a merger that resulted in a £2.5 million settlement for license fees and back support – a significant financial impact that could have been mitigated with upfront planning.

How to avoid under-licensing issues:

• Pre-merger license audit: Before the deal closes, inventory all Oracle products in both companies. Determine exactly what licenses each entity owns and how they’re being used. Identify any areas where usage may overlap or increase after the merger.
• Post-merger true-up: Immediately after merging, perform a comprehensive license compliance assessment. Count all Oracle deployments (CPUs, user counts, etc.) in the combined environment and compare against the total licenses you now have.
• Address shortfalls proactively: If you discover any Oracle software running without sufficient licenses, address the issue before Oracle does. This may involve purchasing additional licenses or relocating workloads to ensure compliance. Doing it voluntarily allows you to negotiate better pricing or terms, rather than paying full price and back fees under audit pressure.
• Pause integration if needed: In some cases, it may be advisable to delay the full integration of Oracle-based systems until license issues are resolved. For example, keep using separate environments temporarily to prevent inadvertently extending usage beyond what is allowed.
• Engage Oracle or experts early: Inform Oracle (under NDA if necessary) about the planned merger and discuss how to handle licenses. Oracle might offer solutions (like a combined agreement or a short-term waiver) to cover the interim period, but get everything in writing.

Cost Pitfalls: Over-Licensing and Redundant Contracts

While compliance shortfalls are risky, the opposite problem can also occur: over-licensing and duplicated costs after a merger.

When two companies combine, they often find they own overlapping Oracle licenses for the same products.

For example, if each company had licenses for 50 Oracle Database processors but the unified infrastructure only requires 60, the merged firm now has 40 more licenses than it uses.

This surplus means incurring ongoing support fees for licenses that are no longer in use. Oracle’s support costs approximately 22% of the license price annually, so acquiring extra licenses results in significant waste.

In the example above, if each database license list price were approximately $47,500, support per license would be over $10,000 per year, which would result in approximately $400,000 per year being spent on unused capacity.

Common cost inefficiencies after M&A:

• Duplicate support contracts: Each company had its own support agreement with Oracle. After the merger, if you maintain both, you may be paying twice for similar coverage.
• Idle “shelfware” licenses: The acquired company’s Oracle licenses might sit unused if the systems are consolidated under the parent’s environment (since the parent’s licenses cover the new setup, the acquired licenses become redundant).
• Inability to drop costs: Oracle does not typically allow for easy partial cancellation of support. If you have extra licenses, you can’t simply stop paying support on them without terminating the licenses entirely. Oracle’s policies often require maintaining support for all licenses within a given set. This can lock you into paying for licenses you don’t need unless you negotiate a solution with Oracle.

Strategies to optimize costs:

• License rationalization: Right after a merger, map out all Oracle licenses owned versus what the combined company needs. Identify surplus licenses that bring no value. You likely cannot get a refund on these, but you can plan not to renew their support at the next cycle (with proper notice). Sometimes, it may involve formally terminating those licenses to stop the support fees.
• Consolidate support renewals: Collaborate with Oracle to consolidate multiple support contracts into a single agreement. This can streamline administration and potentially give leverage to negotiate a better overall support discount. Be careful: when combining contracts, Oracle might attempt to “reprice” the support based on current list prices or normalize any previously steep discounts. Always request a support cost impact analysis from Oracle before merging support agreements. If one of the original companies had a big discount, you might choose to keep support separate to preserve that pricing.
• Negotiate credit or trade-in: Oracle may be open to applying credit from unused licenses toward other products or expanding usage elsewhere. For instance, if you have 40 surplus database licenses, you could negotiate with Oracle to repurpose that investment into new software (like Oracle cloud services or a different module) rather than wasting it. Use the contract consolidation discussion as an opportunity to optimize – Oracle sales reps may upsell, but you can redirect value.
• Avoid auto-renewing everything: Do not blindly renew all Oracle support agreements post-merger without review. Scrutinize each support line item to decide if it’s truly needed in the new environment. If not, plan the proper way to terminate it. Keep in mind Oracle’s rules – you might need to give notice or align termination with the contract anniversary.
• Table: Example Oracle Licensing Cost Impacts During M&A

Consolidating Oracle Contracts Post-Merger

Merging companies often end up with multiple Oracle license agreements, each with its own terms and metrics.

Consolidating these contracts into a single, unified agreement is a best practice, but it needs to be handled carefully.

A unified Oracle Master Agreement for the new entity provides clarity on who the customer is and the rights across all Oracle products in use.

It also simplifies future renewals and audit defense (Oracle has less room to exploit ambiguities when everything is under one contract).

However, when consolidating:

• Preserve negotiated benefits: Ensure that the new master agreement incorporates any favorable terms that either company had previously negotiated. For example, if Company A’s contract allowed broad affiliate usage or had a virtualization-friendly clause, try to include that in the merged contract. Don’t lose hard-won concessions.
• Align licensing metrics: Different metrics (e.g., Named User vs. Processor) can’t coexist easily. Oracle will likely standardize metrics in a consolidation. Determine which metric is most suitable for the combined operations and negotiate converting licenses to that metric if necessary. This might mean counting all usage in one way (e.g,. moving everything to processor licenses or user licenses) – work with Oracle to do the conversion accurately without excess cost.
• Timing is crucial: The timing of consolidation can significantly impact costs. Ideally, consolidate at a natural point, such as a renewal date or the closure of the deal. If you do it mid-term, Oracle may use it as a chance to recalculate support costs. By timing it at renewal, you can also align it with broader negotiations (maybe adding needed licenses or dropping unused ones at the same time).
• Beware of support repricing: As mentioned, when combining contracts, Oracle might adjust support fees. For example, if Company A enjoyed a 50% discount on support and Company B had none, Oracle might average it out or even remove the discount in the new contract. The result could be a higher annual support bill. Combat this by negotiating upfront: explicitly ask that the merged contract maintains the same effective support cost or that Oracle provides credit to offset any increase. You may choose not to consolidate support immediately if it will spike costs – sometimes, keeping two support agreements for a while is better than a big jump.
• No gaps in coverage: When moving licenses under one contract, make sure all products and deployments are properly covered. If some licenses are very limited in scope (such as being specific to a particular project or region), address how they fit into the unified contract. It might require purchasing full-use licenses to replace very restrictive ones.

Overall, consolidation is beneficial for clarity and administration, but negotiate the consolidation like a new deal.

Oracle will often be amenable because it usually means a chance to sell more or streamline revenue, but ensure it doesn’t result in you overpaying or giving up valuable terms.

Read Combining and Carving Out Oracle Licenses Post-M&A and Divestiture.

Special Case: Oracle ULAs in M&A

Many large enterprises operate under an Oracle Unlimited License Agreement (ULA), which permits the unlimited use of certain Oracle products for a specified term.

ULAs bring their challenges in M&A scenarios and need special attention:

• Acquiring a company while under a ULA: Oracle ULAs typically include clauses about acquisitions. Small acquisitions may be allowed to be folded into the ULA (often defined by a threshold, such as adding up to 10% more employees or similar). However, larger acquisitions are usually excluded from ULA coverage. If you buy a sizeable company, that company’s Oracle usage is not automatically covered by your unlimited agreement. You would likely need to notify Oracle and possibly pay an incremental fee to include the new usage, or the acquired company’s usage will require separate licenses. Always check the ULA contract’s wording on what happens if you acquire another firm.
• Your company is acquired: If your organization, operating under a ULA, gets bought by another firm, most ULA contracts state that the ULA ends upon a change of ownership. The unlimited usage rights could terminate immediately or after a short period, forcing you to “certify” (i.e., count and declare) how much Oracle software you were using. After that, the new parent company might need to negotiate standard licenses or a new deal to cover all those deployments. This can be a huge exposure if not anticipated – imagine losing unlimited rights overnight and having to license everything at once.
• Divestitures during a ULA: If you spin off a division while under a ULA, the spun-off entity typically cannot retain unlimited usage rights. Oracle often gives a grace period (e.g., 30-90 days) for the new entity to stop using Oracle or procure its licenses. After that, the new company must obtain its licenses; it can’t continue using the parent’s ULA entitlements. Similarly, the parent may need to reduce its usage count when certifying the ULA if a significant portion of the business is lost.
• Oracle’s post-M&A offers: Oracle sales teams know that M&A creates uncertainty and fear of audits. It’s common for Oracle to approach a newly merged company with offers to “simplify” licensing, often proposing a new ULA or a big cloud subscription deal. They might even imply that signing such a deal will prevent audits (“we won’t audit if you sign this unlimited deal now”). While a ULA can be useful to cover a growth spike from the merger, do not rush in out of fear. ULAs are a double-edged sword: if your combined usage is expected to grow significantly, an unlimited deal could save money; however, if growth is uncertain or if you might divest parts later, you could overpay or struggle when the ULA ends. Always evaluate Oracle’s offer critically, project your Oracle usage needs, and negotiate terms. For example, when considering a post-M&A ULA, try to include clauses that allow for some flexibility in future divestitures or that clearly define how new acquisitions during the ULA are handled. Never accept the first offer—there’s usually room to improve pricing or terms.
• Vigilance and communication: If you have a ULA and an M&A event is on the horizon, talk to Oracle in advance. It’s better to clarify how the ULA will accommodate the change (or not) than to be caught in a violation. If an acquisition would violate your ULA terms, you might strategically decide to certify (end) the ULA early or negotiate an extension to cover the new scope. Being proactive can prevent a scenario where Oracle uses the situation to force a very expensive deal on you.

Read Carving Out Oracle Licenses in Divestitures.

Divestitures and Oracle License Carve-Outs

Mergers aren’t the only scenario – divestitures (spinning off or selling a division) also carry Oracle licensing challenges.

When part of a company separates into a new entity, that new company cannot keep using the parent’s Oracle licenses indefinitely unless specific arrangements are made:

• Short-term grace period: Often, Oracle contracts or negotiated separation agreements allow a limited use of Oracle software by the divested entity for a short period (e.g., 60 or 90 days). This is intended to provide continuity during the new company’s transition. After that grace period, the new company must cease using any Oracle software licensed under the old company’s name or else purchase its licenses. It’s crucial to verify if such a grace period exists in your contract or to negotiate one.
• Transition Services Agreements (TSA): In many divestitures, the parent company might agree to provide IT services to the new entity for a limited time. If this happens and Oracle-based systems are part of those services, it should be documented under a TSA that the usage is temporary and under the parent’s supervision. Oracle typically still needs to be informed – they may require the new entity to be a named party in an agreement during the transition.
• New entity licensing: The spun-off company will likely need to purchase its own Oracle licenses to continue operations independently. Ideally, as part of the divestiture planning, the parent company should coordinate with Oracle to establish the new entity with the necessary licenses. Sometimes, the parent can negotiate a deal for the newco as part of the separation (perhaps Oracle offers a discounted package to the new entity to quickly make them a customer). If you don’t plan this, the new company could find itself unlicensed and facing a fast-tracked audit or a premium purchase under duress.
• Adjusting the parent’s contracts: After divestiture, the parent might end up with excess licenses that were only needed for the departed business. The parent will want to reduce its costs by terminating those licenses or their support. However, as noted, Oracle doesn’t like letting customers drop support easily. It may be necessary to negotiate with Oracle at the time of the split. For example, Oracle might agree to let the parent terminate certain licenses (and stop providing support for them) if the new company purchases its licenses for those products. Clear communication with Oracle is key here – otherwise, the parent could unknowingly continue paying maintenance on licenses that the new entity is using elsewhere, which is a lose-lose situation.
• Communication and timing: Always notify Oracle of the divestiture and the timeline. Don’t wait for them to find out on their own. Early notice can help coordinate the necessary licensing changes. Oracle will likely reach out to the new company to sell licenses; it’s better if this is planned rather than an emergency.
• Avoiding post-divestiture surprises: If Oracle licensing isn’t addressed in a divestiture, the parent company might later discover it’s paying for software support that now runs in someone else’s data center, or the new company might get audited for using software it no longer has rights to. Both outcomes are painful and entirely preventable with upfront planning.

Read Avoiding M&A Compliance Pitfalls.

Recommendations

To ensure compliance and cost efficiency during M&A involving Oracle software, CIOs and CTOs should:

• Integrate Licensing into Due Diligence: Treat Oracle licenses as a critical component of M&A due diligence. Inventory all Oracle software usage and contracts on both sides of a merger or divestiture to uncover any compliance gaps or redundancies before the deal is finalized.
• Engage Oracle (and Experts) Early: Proactively communicate with Oracle about the impending merger, acquisition, or split to ensure a smooth process. Discuss how licenses will be handled and seek written agreements for any transfers or interim use. Consider hiring an Oracle licensing specialist or legal advisor to help navigate contract nuances and negotiate on your behalf.
• Document All Agreements: Maintain meticulous records of all Oracle licenses, contracts, and any communications with Oracle related to the merger and acquisition (M&A) process. If Oracle grants special permission (e.g., to transfer licenses or extend usage during the transition), obtain it in writing and save a copy. This documentation serves as your safety net in the event of a future audit dispute.
• Never Assume Compliance: Do not assume that Oracle licenses will automatically transfer or that Oracle will cut you slack because of a merger. Assume Oracle will enforce contracts to the letter. Verify every licensing assumption against the actual contract terms, and get Oracle’s explicit consent for any changes in usage or ownership.
• Plan and Budget for Changes: Anticipate that Oracle licensing costs may change with the merger. Set aside a budget for potential needs, such as extra licenses to cover a larger user base, higher support fees if contracts are consolidated, or a one-time cost to resolve any compliance findings. It’s better to budget and not need it than to be surprised by a multi-million-dollar bill.
• Optimize and Consolidate Smartly: Consolidate Oracle contracts and support agreements where it makes sense to streamline operations, but do so carefully and negotiate the process effectively. Preserve your discounts and favorable terms during the consolidation process. Aim to have one master agreement for the new entity to simplify management, but only after ensuring it doesn’t raise costs unexpectedly.
• Audit Readiness: Operate under the expectation that Oracle will conduct an audit of the new entity. Conduct your internal license audit as soon as possible after the merger. Reconcile entitlements vs. actual use and fix any issues before Oracle’s auditors arrive. Being audit-ready can drastically reduce the stress and cost if (or when) Oracle initiates a review.
• ULA and Special Contract Caution: If you have an Oracle ULA or any special licensing arrangements, review their exact language about mergers, acquisitions, and divestitures now. If an M&A event is on the horizon, consider renegotiating these clauses for more flexibility. For any new ULA you sign, try to include provisions that account for foreseeable corporate changes (so you’re not trapped if the company structure shifts).
• Plan License Exits in Divestitures: When spinning off a business, create a license transfer plan. Determine which Oracle systems the new entity uses and ensure it understands that it must acquire its licenses. Arrange transitional use agreements as needed to prevent interruptions to operations. Simultaneously, plan how the parent will dispose of the excess licenses – either terminate them with Oracle’s agreement or reuse them elsewhere if permitted.
• Cross-Functional Coordination: Make Oracle licensing a team effort during M&A. Involve IT asset managers, legal, procurement, and finance in the planning process to ensure a comprehensive approach. This ensures all angles (technical deployment, contract law, budgeting) are covered. Regularly update stakeholders on license compliance status throughout the M&A process to avoid surprises.

Read Oracle’s Transfer Policies in M&A .

FAQ (Oracle Licensing in M&A)

Q1: Does a merger automatically transfer Oracle licenses to the new owner?
A1: No. Oracle licenses do not automatically transfer in the event of a merger or acquisition. Licenses are bound to the original customer (legal entity). You must get Oracle’s approval to assign or transfer those licenses to a new or merged entity. Without formal consent, if the acquiring company uses the acquired company’s Oracle software, that use is unlicensed and in breach of the contract.

Q2: Can the acquiring company use the acquired firm’s Oracle software right after closing?
A2: Only in a limited way. The acquired company’s Oracle licenses remain valid only for that entity’s pre-existing use. Those licenses don’t automatically cover the parent (acquirer). Until you renegotiate with Oracle or consolidate contracts, the acquired licenses should be used only for the operations of the acquired business as they were. Any new or expanded use by the parent company or combined IT environment requires Oracle’s agreement (or new licenses).

Q3: What steps should we take before merging to handle Oracle licenses?
A3: Perform thorough license due diligence. Inventory all Oracle products and licenses in both companies. Review contract terms for clauses on assignments or mergers. Identify any compliance gaps or overlaps. Engage Oracle early – inform them of the planned merger and ask about options (e.g., can licenses be transferred or a new agreement made). If necessary, negotiate adjustments or obtain written assurances from Oracle before the first day of the merged entity. This proactive approach will save headaches in the future.

Q4: Will Oracle audit our company after an M&A event?
A4: It’s highly likely. Mergers and acquisitions are prime triggers for Oracle audits. Oracle often initiates a license review shortly after a deal is public or completed, aiming to catch any compliance issues in the new entity. Assume an audit will occur and prepare accordingly (internal audit, address issues, and have documentation ready). If you’re prepared, an Oracle audit becomes a routine check rather than a crisis.

Q5: How can we optimize Oracle costs when two companies merge?
A5: Start by identifying duplicate licenses and redundant support contracts. You can potentially eliminate paying support on overlapping licenses (though you may need to formally terminate some to stop fees). Consolidate contracts to leverage volume for better discounts, but do so carefully to avoid increases in support costs. Additionally, consider whether the merged organization can negotiate a more favorable enterprise deal with Oracle, given its larger scope. The key is not to keep everything by default – rationalize what you have against what the business needs after integration.

Q6: What happens to an Oracle ULA if we acquire another company?
A6: Check your ULA contract. Most Oracle ULAs don’t automatically cover large acquisitions. If you acquire a company, that company’s Oracle usage is typically excluded from your unlimited agreement unless you negotiate to include it (often for an added fee). You’ll need to notify Oracle about the acquisition; they may require a contract addendum or even an early ULA certification. Always involve Oracle as soon as possible to understand your options – you might need to purchase additional licenses for the acquired environment or convert the ULA into a new agreement that covers both.

Q7: How does being acquired by another company affect our Oracle ULA?
A7: Generally, if your company under a ULA is acquired, the ULA terminates upon change of control (unless there’s a special clause allowing continuation). This means that your unlimited usage rights have ended, and you must certify your usage immediately. After certification, the licenses become fixed, and the new parent company will be responsible for any additional licenses that may be needed. It’s a critical situation to plan for: you may want to accelerate ULA certification before the acquisition finalizes or negotiate with Oracle to transfer the ULA. Without planning, the new owner could face a huge licensing cost to cover all the Oracle software your company was running under the “unlimited” umbrella.

Q8: We’re divesting a division – can the new standalone company keep using our Oracle software?
A8: Only for a short transition, if at all. Typically, once the division becomes a separate company, it must have its own Oracle licenses. Your existing licenses cover your company and its majority-owned units – a fully separated company is no longer covered. Oracle often allows 30-90 days of continued use as a grace period (if at all, and usually documented in the separation terms), after which the new entity has to stop using your licenses. It should either strike a deal with Oracle, or you arrange a temporary services agreement to bridge the gap. Plan this during the divestiture to ensure the new company isn’t suddenly unlicensed.

Q9: What should we watch out for with Oracle support fees after M&A?
A9: Be cautious of support contract changes. If you combine two support agreements, Oracle may recalculate the support costs using current pricing or unify the discount rate, which can result in increased total fees. Additionally, if you attempt to drop some licenses (to save costs), Oracle’s support policies may require you to maintain a certain level of support or incur penalties. To manage this, negotiate with Oracle: for example, obtain a quote for the combined support cost and determine if it is a sensible option. Sometimes, keeping contracts separate for a while is better. Always communicate any entity changes to Oracle Support to ensure continued service. If a new subsidiary isn’t listed on a support contract, Oracle may technically refuse service until the paperwork is updated.

Q10: Should we involve a third-party advisor for Oracle licensing in an M&A?
A10: It’s often a good idea. Oracle’s licensing rules are notoriously complex, and mergers make them even more convoluted. A specialized software licensing advisor or Oracle licensing consultant can help analyze both companies’ license position, identify hidden risks or savings, and guide negotiations with Oracle. They can also assist in crafting the terms in purchase agreements or TSAs related to software. In many cases, the cost of hiring an expert is far less than the cost of an Oracle compliance mistake or a suboptimal contract that you might end up with by going it alone. Even your legal team, if not experienced in software contracts, can benefit from an expert interpreting Oracle’s clauses during the M&A.

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