Salesforce Contract Negotiation During Mergers and Acquisitions
Mergers, acquisitions, and divestitures can wreak havoc on existing Salesforce contracts.
This article is a CIO/CTO playbook for negotiating Salesforce license agreements during corporate M&A events.
It covers how enterprise technology leaders and procurement heads can ensure flexibility, avoid redundant costs, and renegotiate terms when organizations combine or split.
In short, if your company is merging or divesting business units, you’ll learn strategies to adapt your Salesforce licensing and protect your IT budget through the transition.
Introduction: Salesforce Contracts in M&A Scenarios
When enterprises merge or acquire another company, they often inherit multiple Salesforce orgs and contracts. Each may have different end dates, products, and committed user counts.
Without careful planning, a merger can result in overlapping licenses, conflicting contract terms, and wasted money on duplicate subscriptions.
For example, suppose Company A and Company B committed to 500 Salesforce users on separate contracts, post-merger. In that case, you might be paying for 1,000 licenses when only 800 are actually needed across the combined entity.
CIOs and IT Asset Managers must proactively address these inefficiencies.
Similarly, during a divestiture, questions arise: Can you transfer or assign part of a Salesforce contract to the spun-off entity? Will you be stuck paying for users that leave with the divested unit?
This section sets the stage for why M&A events demand a fresh look at Salesforce agreements.
M&A transactions are high-stakes and fast-moving. Software licensing can be overlooked amid legal and financial due diligence. Yet, failing to rationalize Salesforce contracts can lock the new organization into rigid terms or excess costs that erode the deal’s intended synergies.
To avoid this, Salesforce (and other major SaaS contracts) should be treated as a critical workstream in any merger, integration, or separation plan. The goal is to align contracts with the new corporate structure and ensure you only pay for the necessary licenses.
Challenges of Merging Salesforce Contracts
1. Overlapping Contracts:
Merged companies might end with multiple Salesforce contracts with different renewal dates, discount levels, and products. This fragmentation reduces your volume leverage and makes administration complex.
One org might be on a higher-priced Unlimited Edition, while the other is on Enterprise Edition with specific add-ons. Until consolidation is addressed, you could be double-paying for similar functionality.
2. “No Reduction” Clauses:
Salesforce’s standard agreements don’t allow for reducing license counts mid-term.
In an acquisition, if there are redundancies (e.g., both companies had 300 Sales Cloud licenses, but the combined sales team is only 500 people, not 600), you cannot simply drop the extra 100 licenses until renewal.
Without negotiating flexibility, the merged entity pays for shelfware (unused licenses) for the remainder of the terms.
3. Contract Assignment Restrictions:
Salesforce contracts typically require consent to assignment. That means if Company A is acquired by Company B, you often need Salesforce’s approval to transfer or assign the contract to the new owner.
In practice, Salesforce will work with you (they want to keep the business), but this gives them a negotiation moment to potentially update terms or push new deals.
4. Different Pricing and Discounts:
Each legacy contract may have different pricing. One company may have negotiated a 50% discount off the list, while the other only got 30%.
If you’re not careful, Salesforce might attempt to harmonize pricing at the lower discount post-merger. CIOs must leverage the increased combined spending to push for the best of both deals, not the worst.
5. Data Migration and Technical Integration:
While not a contract term issue, merging Salesforce orgs or migrating data can influence your negotiations. Suppose you plan to consolidate into one Salesforce org.
In that case, Salesforce’s team may offer help or incentives, but also be aware of any licensing implications (e.g., needing temporary integration licenses or sandbox environments).
Ensure any support they provide doesn’t come with hidden costs or contract extensions unless you explicitly agree.
Ensuring Flexibility in Contracts During M&A
To avoid being trapped by rigid contracts, negotiate flexibility up front if you anticipate a merger or divestiture, or as soon as one is announced:
- Include Assignment Clauses: Work with legal to include a clause that Salesforce “will not unreasonably withhold or delay consent” to contract assignment or transfer in case of a merger or reorganization. Ideally, seek a provision to transfer the agreement to an affiliate or surviving company. This prevents Salesforce from using the assignment as an excuse to force a new contract at possibly worse terms.
- Negotiate True-Down Rights at Renewal: While Salesforce won’t allow mid-term reductions, try to negotiate true-down flexibility at the next renewal in the context of a merger. For example, you might get an agreement that at renewal, the combined company can reduce the total license count by a certain percentage without penalty to eliminate overlap. This is not standard, but large enterprise customers have had some success, especially if Salesforce knows a merger is happening and wants to secure the longer-term combined business.
- Co-Termination of Agreements: If you end up with multiple Salesforce contracts, aim to co-term them (align expiration dates) as soon as practical. This often means doing a short-term extension or renewal on one side so that both contracts end together. Co-terming gives you one unified negotiation window to strike a better enterprise-wide deal, leveraging your full user base. It simplifies life so you’re not constantly renewing one contract or another.
- Unified Master Agreement: Post-merger, ask Salesforce if you can roll both entities under a single Master Subscription Agreement (MSA) with consistent terms. This might be done during a renewal or via an amendment. A unified MSA for the combined company ensures that both inherited contracts follow the same rules for liability, usage, and renewal protections. It also streamlines any future procurement or legal review.
- Volume Discount Recalibration: Use the combined company’s increased scale to demand better pricing. If each firm had 500 users, you now have 1,000 in total. Salesforce should offer a bigger volume discount. Prepare usage data from both entities and approach Salesforce with a proposal to consolidate licenses into one deal at a more aggressive discount tier (e.g., an extra 10-15% off previous rates). Vendors know that post-merger, IT budgets are scrutinized for savings; Salesforce may accommodate to retain the consolidated account.
Consolidation vs. Separation Strategies
Depending on the scenario, you’ll need a strategy to either consolidate contracts or separate them:
In a Merger or Acquisition (Consolidation): The aim is to combine contracts into one optimized agreement.
Key steps:
- Inventory All Licenses: Merge the inventory of all Salesforce products and licenses both companies have. Identify overlaps (e.g., both use Sales Cloud) and unique items (maybe one had Marketing Cloud, the other didn’t).
- Identify Redundant Users: Determine how many total distinct users you’ll have after combining (removing duplicate accounts or roles). This helps find how many licenses can potentially be cut.
- Engage Salesforce Early: Alert your Salesforce account reps on both sides that the companies are merging, and you want to discuss a consolidated contract. Salesforce will likely assign a senior account team to handle the combined entity.
- Leverage Term Discrepancies: If one contract ends sooner, you can fold those users into the other contract’s renewal. If they end simultaneously, plan a big negotiation ahead of that date. If they end far apart, consider a bridge extension on the earlier one to align with the latter.
- Negotiate an Enterprise Agreement: Salesforce might propose an Enterprise License Agreement (SELA) covering all usage for large user counts. This can simplify pricing (one big annual commitment for all products). If you go that route, ensure the commit is based on the new merged actual needs, not just blindly adding the two old commits.
In a Divestiture or Spin-Off (Separation), The goal is to let the spun-off entity continue using Salesforce without the parent overpaying:
- License Carve-Out: Decide how many licenses or which products the new company will need versus what stays with the parent. Ideally, negotiate with Salesforce to carve those out into a new contract for the new entity. For example, if 200 of your 1,000 licenses are for a division being sold, ask Salesforce to transition those 200 into a separate agreement under the new owner. This may require concurrent termination and re-signing under the new org – get Salesforce’s commitment in writing.
- Avoid Stranded Costs: If Salesforce won’t agree to a mid-term carve-out, the parent might be stuck paying for unused licenses after divestiture. In that case, push for a license transfer credit—maybe Salesforce can credit the unused term value of those 200 licenses toward future bills or other products for the parent company.
- Transitional Use: Ensure the divested unit can legally use Salesforce during transition. Often, separation agreements allow the child company to use the parent’s systems for X months. Work with Salesforce to permit this until they get their own instance, without violating contract terms. Possibly, a short-term amendment can authorize the usage by the new entity during transition at no extra cost.
- Future Non-Compete: If you spin off a division, that new entity may become an independent Salesforce customer. Negotiate now that Salesforce will provide them equal or better pricing for their new contract (especially if they were part of your volume discount). You might include language like “Salesforce will offer DivestedCo the same discount % on products for a period of 12 months.” This keeps Salesforce honest and prevents it from gouging the smaller spin-off later.
Engaging Salesforce with the Right Approach
During M&A, your leverage with Salesforce can go both ways. On the one hand, the combined spending is bigger, which should earn better treatment.
On the other hand, Salesforce knows such corporate upheaval is chaotic, and they may seize the moment to upsell or lock you in further.
Here’s how to approach discussions:
- Clear Communication: Assign one primary licensing negotiator (e.g., your procurement lead or CIO) to interface with Salesforce across both original companies. Present a unified front that “we are now one company” to prevent Salesforce from trying to separate conversations that divide and conquer.
- Business Case for Consolidation: Prepare a short business case to share with Salesforce on why consolidating contracts now is mutually beneficial. Emphasize simplification and a long-term partnership. Salesforce is more amenable if they can secure a multi-year renewal or prevent losing users to competitor platforms during a messy integration.
- Guard Your Data: Be cautious about revealing internal timelines or integration plans. Salesforce’s sales team might prod to find out if you’re considering dropping one of the Salesforce orgs in favor of another CRM for certain users. Share only what helps your case (e.g., total combined users) but not strategic alternatives you’re weighing.
- Parallel Negotiations: If the merger gives you an opening, it might be a great time to benchmark alternatives like Microsoft Dynamics 365 or others. Even if you plan to stick with Salesforce, letting Salesforce know that the new, larger organization is re-evaluating all systems can spur them to offer concessions. The threat of losing a portion of the combined business (e.g., maybe one company was considering switching CRM) can be a powerful lever.
Cost Optimization Example
Consider a real-world style example: Company A spends $1.2M/year on 800 Salesforce licenses; Company B spends $800k/year on 500 licenses.
Separately, they paid a combined $2M for 1,300 licenses. After merging, usage analysis shows only 1,000 licenses needed (due to role overlaps and some contractors).
By consolidating and dropping 300 excess licenses at renewal, the new Company AB aims to spend $1.5M for 1,000 licenses, saving $500k annually.
To achieve this:
- They negotiate to eliminate shelfware at renewal (300 licenses removed).
- They push Salesforce for a higher volume discount on 1,000 users (say 45% off list, whereas previously one contract was 30% off).
- They align contract end dates and secure a price cap on renewals (no more than 5% annual increase) to stabilize long-term costs.
- During talks, Salesforce initially offered $1.8M for the 1,000 licenses (blending the rates of the two contracts). By leveraging the possibility that some users might migrate to a rival CRM, they convinced Salesforce’s “business desk” to approve the $1.5M/year deal for a three-year term.
The result: The merged firm avoids paying for unused licenses and benefits from its new scale at a better unit price.
This illustrative scenario shows how proactive negotiation in light of M&A can yield significant savings and contractual improvements.
Recommendations (for CIOs and CTOs)
- Audit Combined Usage Early: Inventory all Salesforce licenses across merging entities and identify overlaps or unused capacity before talking to Salesforce. Data is your ally.
- Align Contract Timelines: Wherever possible, negotiate co-termination of contracts so you have one unified renewal date to leverage the full combined user base.
- Negotiate Assignment & Flex Clauses: Ensure your contracts allow transfer in M&A events and push for true-down rights at the next renewal to shed duplicate licenses.
- Don’t Overcommit Post-Merger: Be conservative in committing to user counts for a new combined deal. Base it on current actual staff, not rosy growth projections, so you don’t lock in shelfware.
- Leverage Increased Volume: The merger’s larger scale can be used to demand deeper discounts or better terms (like additional sandbox environments or support upgrades at no cost).
- Involve Legal Early: Have your legal team review Salesforce agreements for any change-of-control, assignment, or anti-assignment clauses so there are no surprises. Renegotiate these if needed.
- Communicate With Stakeholders: Align with finance and business unit leaders about license needs after the merger. Present a united front to Salesforce on requirements.
- Consider Third-Party Advisors: For complex mergers, engaging a software licensing consultant (or Salesforce negotiation specialist) can uncover optimization opportunities and bolster your negotiation with benchmark data.
- Plan for Org Consolidation: If you merge Salesforce instances, coordinate that project with contract negotiations – Salesforce might offer technical support or incentives, which you should trade for better terms.
- Keep Options Open: Even amid integration, maintain pressure by evaluating other CRM or platform options for parts of the business. If Salesforce believes there’s competition, it will be more flexible about keeping the merged account.
FAQ (M&A and Salesforce Negotiations)
Q1: Can we transfer or assign a Salesforce contract to a new entity after a merger?
A: Generally, Salesforce contracts don’t allow free assignment – you need Salesforce’s consent. In practice, you should notify Salesforce of the corporate change. They often agree to transfer the contract to the surviving entity (or new owner) via a contract amendment. It’s wise to negotiate an assignment clause in your agreement beforehand, but if not, work with your Salesforce rep and legal counsel post-merger to document the transfer. Always get it in writing; don’t assume it’s automatic.
Q2: What if both merging companies have Salesforce – should we keep two orgs or consolidate into one?
A: This is both a technical and commercial decision. From a cost perspective, consolidating into one Salesforce org and one contract usually yields savings (volume discounts, fewer duplicate admin costs).
However, consolidation can be technically complex (data migration, process reconciliations). If you plan to maintain separate orgs for a while, you can still consolidate the contracts (Salesforce can sell multiple org subscriptions under one contract umbrella). Many companies eventually unify into one org to streamline operations and vendor management.
Q3: How do we handle overlapping products, like if both companies have Marketing Cloud?
A: First, evaluate if you need both instances or if you can scale one to accommodate all needs. If both were using Marketing Cloud, see if you can merge those or drop one. You’ll want to renegotiate for contract purposes as one larger Marketing Cloud agreement with combined contact counts or message volumes. This should earn you a better rate per contact. Check if either company was under-utilizing their Marketing Cloud subscription – that’s leverage to possibly reduce overall quantities.
Q4: The other company is midway through a multi-year Salesforce deal. Can we break it?
A: Salesforce’s multi-year deals are binding – you typically can’t break them without paying out the term. Instead, your best bet is to negotiate with Salesforce to merge it into your renewal. One approach: if Company B has 2 years left on a contract, ask Salesforce to roll those users into Company A’s renewal now, perhaps extending to a fresh 3-year for all, with improved pricing. Salesforce might do this to secure a long-term combined deal. They may credit or nullify the remaining term of one contract as part of signing a new master agreement.
Q5: After a divestiture, we have surplus licenses we no longer need. Will Salesforce take them back or give credit?
A: Not without negotiation. By default, you’re on the hook for all licenses until the contract ends, even if 20% of your users have left the company. However, if you engage Salesforce, they might offer accommodation, especially if the divested unit becomes a new customer. For example, they might let you reduce some licenses at renewal (if it’s near) or apply a portion of the remaining value as a credit towards other products. Each case is unique – the key is to approach Salesforce openly about the situation and ask for a win-win solution (they keep the new company as a client, you get relief on the unused licenses).
Q6: Should we renegotiate immediately when a merger happens, or wait until renewal?
A: Ideally, renegotiate as soon as you can reliably determine the new needs. If one contract’s renewal is imminent (within 12 months), start then. If renewals are farther out, you might seek an interim amendment or a consolidation agreement now rather than carrying suboptimal contracts for years. Mergers are a significant event – Salesforce knows that the status quo won’t hold, so it’s often open to restructuring deals early in exchange for clarity (potentially locking you in longer). Ensure any new agreement you sign truly benefits you (better pricing/flexibility) and isn’t just for Salesforce’s convenience.
Q7: We want to consolidate contracts, but one company’s Salesforce deal had special terms (e.g., unlimited sandboxes). Will we lose those?
A: Not if you negotiate wisely. List out any special concessions or features in each legacy contract. When crafting the consolidated contract, explicitly include the union of all beneficial terms. For instance, if Company A had an extra sandbox or a fixed price uplift cap of 5%, carry those into the new agreement. Don’t let Salesforce drop a good term “by accident” during consolidation. Use the opportunity to equalize – the combined contract should keep the best of both worlds (and ideally improve further).
Q8: How can we avoid disruption to users during an M&A-related contract change?
A: Plan carefully with Salesforce and your internal teams. If you are merging orgs, schedule it during a low-impact time and run dual systems if needed for a short period. From the contract side, ensure no lapse in service: coordinate the end of old contracts and start of new so they overlap or transition seamlessly. Communicate to end-users that their Salesforce access will continue normally. Most negotiation steps are back-end and legal – users shouldn’t feel any change if done right. The biggest risk is if a contract issue causes a license to deactivate; avoid that with proactive renewal or extension while new terms are finalized.
Q9: Post-merger, our license count is over in one organization but under in another. Can we reallocate?
A: Licenses aren’t automatically transferable between separate Salesforce orgs/contracts. If Company A has 100 unused licenses and Company B needs 50 more, you can’t just shift them – they’re tied to each contract. The fix is to consolidate contracts or have Salesforce formally move licenses. In the interim, talk to Salesforce about a short-term accommodation: they might allow the extra 50 users under Company B’s org at a discount or on a trial basis until contracts merge. Long-term consolidation ensures all users draw from one license pool, so you can allocate internally as needed.
Q10: Will Salesforce audit us or change terms because of the merger?
A: A merger doesn’t trigger a Salesforce audit, but if two big customers become one, Salesforce definitely takes notice. They might review compliance more closely when merging orgs or contracts (e.g., ensuring you’re not using more licenses than purchased during the shuffle). Ensure both pre-merger companies complied with user counts and usage limits to avoid complications. Regarding contract changes, Salesforce can’t unilaterally change your contract due to M&A, but the renewal or consolidation negotiation is where terms will evolve. That’s your chance to catch any unfavorable changes and insist on maintaining protections.
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