Introduction to Oracle Licensing Mergers and Acquisitions
In the complex world of mergers and acquisitions (M&A), Oracle licensing can pose a significant challenge.
The intricacies of Oracle’s licensing policies and the contractual obligations of both merging entities can lead to compliance issues and potential audit risks.
- Compliance in M&A: Oracle’s “customer definition” clause can impact license compliance during M&A.
- Customer Definition: A contractual term that specifies which legal entities may use Oracle software.
- Audit Risk: M&A activities can trigger Oracle audits, leading to high immediate risks.
- Strategic Steps: Companies should review licensing deployments, license entitlements and negotiate with Oracle to ensure compliance and cost-effectiveness.
Understanding Compliance in M&A
When two companies merge, the assumption is often that both entities have sufficient quantities and products to cover their use of Oracle software.
However, a critical factor that can prevent the merged entity from using Oracle software across both entities is the contractual term known as the “customer definition.”
What is the Customer Definition?
The “customer definition” is a contract term in Oracle’s Ordering Document. It specifies which legal entities may use and access Oracle software.
In the context of a merger, both entities will have different customer definitions, and this discrepancy can prevent the use of licenses across both entities.
The Audit Risk in M&A
The immediate audit risk during M&A is very high. M&A is probably the most common trigger for any software audit, including Oracle audits.
This risk arises from the potential misalignment of licensing agreements and the actual software usage in the merged entity.
Steps Companies Should Take
To mitigate these risks and ensure compliance, companies should take the following steps:
- Review Licensing Deployments in Both Entities: This step is crucial to understand the current licensing situation and identify potential compliance issues. It also helps to identify any missing licenses that may need to be purchased. This purchase can be used as leverage to renegotiate the contracts.
- Review All License Entitlements: Creating a global overview of potential contract risks and identifying which entity has better terms can be strategic for future operations.
- Remediate License Shortfalls and Identify Surplus: If licenses are shortfalls, remediation should be a priority. Conversely, if there is a surplus of licenses, those licenses can be targeted for cost savings.
- Negotiate with Oracle: Once a full license compliance position is achieved and a license entitlement overview is created, companies can negotiate with Oracle to change the customer definition to enable use across both entities.
Frequently Asked Questions
What is the "customer definition" in Oracle licensing?
The “customer definition” is a contractual term in Oracle’s Ordering Document. It specifies which legal entities may use and access Oracle software.
Why is M&A a common trigger for Oracle audits?
M&A often leads to changes in software usage that may not align with existing licensing agreements, triggering an audit.
What steps should companies take during M&A to ensure Oracle license compliance?
Companies should review licensing deployments, license entitlements, remediate license shortfalls, identify surplus licenses for cost savings, and negotiate with Oracle to change the customer definition.
By understanding the complexities of Oracle licensing in M&A and taking strategic steps, companies can ensure compliance, mitigate audit risks, and achieve cost savings.