Temporary License Bridging for SAP Access During M&A Transitions

Temporary License Bridging: Solutions for Interim SAP Access During Transitions

Temporary license bridging offers a compliant, short-term solution for users of one company to access another company’s SAP system during a transition period.

By leveraging formal agreements or interim licensing arrangements, CIOs and CTOs can ensure business continuity after a merger or divestiture without violating SAP’s strict licensing rules.

This article examines practical bridging options – ranging from transitional service agreements to partner-hosted solutions – that enable seamless operations and mitigate costly compliance issues during corporate transitions.

The Need for Interim SAP Access

During corporate M&A transitions, temporary licensing arrangements ensure the separated or acquired entity can legally use another company’s SAP system until it migrates to its own. This approach avoids business disruption while ensuring compliance.

When companies undergo mergers, acquisitions, or carve-outs, IT systems often integrate more slowly than the business itself.

A newly acquired or separated unit might rely on another company’s SAP ERP to run critical processes before a full transition is complete. For example, a spin-off (SpinCo) may continue using the parent company’s SAP for a few months after separation, or an acquiring firm may need data from the acquired company’s SAP system.

In these scenarios, temporary access to SAP is crucial for maintaining operational continuity. However, SAP licenses are tied to specific legal entities, meaning that employees of one company are typically not authorized to use another company’s SAP software without proper arrangements.

This creates a licensing gap that must be bridged to avoid compliance violations.

Read Divesting a Business Unit Running SAP: Licensing and Contract Strategies.

SAP License Constraints and Compliance Risks

SAP’s standard contracts include strict non-transferability clauses – licenses can’t freely move between companies or cover third parties. If a divested business continues to use the former parent’s SAP system without a new agreement, both sides risk breaching license terms.

The parent company would be providing unlicensed SAP access to an external entity, and the spin-off would be using SAP without a valid license, which SAP considers non-compliant.

Similarly, in a merger, if employees of Company A start logging into Company B’s SAP system (or vice versa) without updating license counts or contracts, it creates an unlicensed usage situation. SAP actively monitors M&A events and often triggers audits after such changes.

The risk is significant: SAP compliance audits can result in steep penalties or the mandatory purchase of licenses retroactively. Real-world cases show companies facing multi-million-dollar true-up bills for allowing interim access informally.

For instance, one merged firm that allowed 200 users to access another’s SAP system without licenses received a $1.5 million audit charge for those users, in addition to paying maintenance for redundant licenses.

In another case, a parent that failed to plan for a license transfer ended up with 500 unused SAP user licenses (for which they were paying support), while the spun-off unit had to purchase a new SAP contract at higher prices.

These examples underscore that skipping a formal bridging solution can result in significantly higher costs in the long run, including compliance penalties and duplicate expenses.

Read Managing SAP Notifications for Company Changes: Contractual Compliance and Communication Strategies.

Transitional Service Agreements (TSA) and Temporary Licensing

One common solution for interim SAP access is using a Transitional Service Agreement (TSA) that includes SAP usage.

In a TSA, the original owner (e.g., ParentCo) agrees to continue providing systems and services (such as SAP) to the new entity (SpinCo or buyer) for a limited period after the transaction.

However, because SAP licenses can’t simply be lent out, it’s critical to obtain SAP’s consent for this TSA usage.

SAP typically formalizes this by issuing a temporary license extension or amendment to the parent’s contract for the transition period.

Key points about TSA-based bridging:

• Negotiate Upfront: Engage SAP early (ideally before deal closure) to obtain approval for the transitional use of the software. If you pre-negotiate TSA usage clauses in your SAP contract, this process is smoother. For example, a contract might state that “in a divestiture, a former affiliate may continue using the software for up to 12 months under a TSA.”
• Defined Period: SAP usually grants a temporary use period (commonly 6–12 months) for the separated entity to run on the original SAP system. This is often documented via a Temporary Use License (TUL) letter or contract addendum. It provides legal protection for continued access without requiring an immediate purchase of a full license.
• Cost Implications: SAP may charge a fee for the usage rights to TSA. Many customers negotiate a one-time “transition license” fee – for example, some have paid roughly 10–20% of the divested unit’s original license value to cover up to a year of use. This fee is typically much cheaper than what a new entity would pay for an entire SAP environment upfront. It effectively “rents” the licenses on a short-term basis.
• Avoiding Gaps: Ensure the TSA license arrangement is in place by the first day of the transition. If you wait until after separation to seek approval, you risk a period of non-compliant use. It’s best to include the SAP TSA terms as part of the M&A planning and have agreements signed concurrently with the deal closing.

By securing a TSA-based temporary license, CIOs can maintain business continuity – the new entity’s team keeps using the familiar SAP system on Day 1 – while staying compliant.

Just remember that the clock is ticking: the arrangement is finite, so use the window to implement the long-term solution (whether migrating to a new SAP instance or another ERP).

Partner-Hosted and Cloud Bridge Options

Another solution for interim SAP access is leveraging a third-party or SAP-hosted environment temporarily.

In scenarios where directly sharing the original system is impractical or SAP’s terms are too costly, companies can turn to SAP’s cloud offerings or certified partners to bridge the gap:

• SAP Partner Managed Cloud (PMC): In a partner-hosted model, an SAP-certified hosting partner runs an SAP system on behalf of the transitioning entity. The partner essentially provides the SAP licenses as part of their service. For example, a spin-off could sign a 1-year agreement with a hosting provider to use SAP. The partner operates the SAP instance in their data center or cloud and is responsible for license compliance under their agreement with SAP. SpinCo just pays a subscription or monthly hosting fee. This approach offloads the licensing burden to the partner for the interim period. It’s often more costly per month than a standard SAP license (the partner adds their margin), but it avoids a large upfront purchase and can be scaled or terminated flexibly once the transition is complete.
• SAP HEC or RISE (SAP-Hosted Cloud): SAP’s own cloud solutions, such as HANA Enterprise Cloud (HEC) or RISE with SAP, can serve as interim platforms. SAP can migrate the relevant system to a cloud subscription contract that runs for the needed duration. Essentially, the new entity subscribes to SAP software in the cloud for a short term. For instance, an acquired business unit might move into a RISE contract for a year while evaluating long-term ERP plans. This gives immediate legal usage rights through subscription licensing. One advantage is that SAP’s cloud contracts might be easier to start quickly for a subset of users, and they include infrastructure. The downside is you may end up in a longer commitment than needed (SAP often sells multi-year terms) unless you negotiate a flexible short duration.
• Data and Process Carve-Out to New System: In some cases, accelerating the development of a new, independent SAP system (or alternative ERP) for the entity can reduce the need for bridging. For cloud SaaS solutions like SuccessFactors or Ariba, this may involve quickly setting up a new tenant for the new company and migrating data to minimize overlap in the use of the old system. While this isn’t a “license bridging” per se, it’s a strategy to reduce dependency on the other company’s system, thereby shortening any TSA or partner-hosted term.

Using a partner or SAP’s cloud as a bridge can be very effective if a longer transition is expected. It essentially treats the interim period as a managed service – you pay for SAP as a service for X months, then later either drop it or transition to your permanent solution.

Just be sure to vet the scope: ensure the partner contract explicitly covers all the SAP usage you require (including all modules, user count, etc.), and obtain SAP’s acknowledgment that this arrangement is suitable for your needs.

The goal is to remain fully compliant while avoiding a rushed, suboptimal license purchase.

Cost Comparison of Bridging Options

It’s important to weigh the costs and risks of different approaches to interim SAP access. Below is a comparison of common options:

As the table shows, investing in a proper interim licensing solution is far more cost-effective and less risky than doing nothing.

Paying a one-time transition fee or a few months of a cloud subscription can save millions compared to incurring audit penalties or hastily purchasing unnecessary licenses.

Although options like partner hosting or SAP’s RISE may seem expensive every month, they provide a controlled bridge that can be terminated when no longer needed, thereby avoiding long-term waste.

Recommendations

• Plan License Bridging Early: Incorporate SAP licensing considerations into M&A planning from the start. Identify if and where interim cross-company SAP access will be required, and address it before the transition begins on Day 1.
• Engage SAP for Transition Terms: Proactively discuss your transition plans with SAP (under NDA if needed) to secure a Temporary Use License or TSA agreement. Negotiating terms (duration, cost) upfront yields better outcomes than asking for them at the last minute.
• Include TSA Clauses in Contracts: Whenever possible, add clauses to SAP contracts that permit transitional use in events such as divestitures or acquisitions. For example, pre-approve 6–12 months of post-separation usage and/or the right to transfer some licenses to a spun-off entity. This gives you contractual leeway later.
• Use Short-Term Hosting as a Backup: If direct bridging is complex or SAP’s offer is too costly, line up a certified SAP hosting partner who can quickly provide the new entity with an SAP environment. This can serve as an insurance policy, allowing the business to continue operating legally even if contracts aren’t finalized.
• Avoid Duplicate License Purchases: Resist the urge to immediately buy a whole new SAP license set for an acquired unit if you plan to consolidate systems. Explore bridging or integrating users into existing contracts first. Buying licenses that might be redundant later will waste budget and increase support costs.
• Conduct License Audits Pre- and Post-Deal: Before the transition, audit both companies’ SAP use and contracts. Address and resolve any compliance issues (e.g., indirect use, user classifications) to prevent inheriting problems. After integration, reconcile licenses and eliminate overlaps. This eliminates the need to pay maintenance on idle licenses and strengthens your negotiating position with SAP.
• Leverage Scale in Negotiations: Use the transition as an opportunity. When merging companies, approach SAP for a consolidated agreement or conversion to an enterprise subscription that covers both entities. SAP may offer discounts or favorable terms to secure a larger, long-term deal, turning a compliance exercise into a strategic win.
• Document Everything: Ensure that the temporary arrangement (TSA letter, partner contract, etc.) is documented in writing, including clear dates and conditions. If audited, you will need to provide proof that SAP has granted permission for interim usage. Keep these documents accessible to your software asset management team.

FAQ

Q1: What is “temporary license bridging” in SAP, and why is it needed?
A1: Temporary license bridging refers to any short-term arrangement that legally allows one company’s users to access another company’s SAP system during a transition (like a merger, acquisition, or divestiture). It’s needed because SAP licenses can’t be freely shared across separate organizations. Without bridging, the interim period could result in unlicensed (illegal) use of SAP, exposing both companies to compliance violations and potential system shutdowns. Bridging solutions ensure continuous operations while staying compliant with SAP’s rules.

Q2: How can we let a divested business unit keep using our SAP system for a few months?
A2: The safest method is to establish a Transitional Service Agreement (TSA) that includes SAP usage and get SAP’s approval for it. Practically, this means negotiating a temporary extension of your SAP license to cover the divested unit for a defined period (often 6–12 months). SAP typically formalizes this through a contract addendum or a temporary license key. You may need to pay a negotiated fee for this privilege, but it allows the spin-off’s employees to legally use your SAP system until they transition to their own environment. Always have this agreement in place by the time the divestiture closes to avoid any gap in compliance.

Q3: In an acquisition, can the acquired company’s SAP contract simply transfer to us as the new owner?
A3: Not automatically. SAP contracts typically have change-of-control restrictions. If the acquired company remains a separate legal entity, its SAP license can sometimes continue for a while. Still, SAP usually requires notification and its consent (often via a novation or new agreement). In many cases, SAP will insist that the new owner sign a new contract or, at the very least, update the terms (they may not honor the old deep discounts post-acquisition). As a buyer, you should negotiate with SAP to either take over the existing licenses for a transition period or sign a short-term extension. Be prepared that SAP might condition continued use on your committing to a new deal within a certain timeframe (e.g., within 6 months). It’s wise to communicate that you have alternatives (like migrating off SAP) to maintain leverage for reasonable terms.

Q4: What are the alternatives if SAP’s transition license offer is too expensive or inflexible?
A4: If SAP’s proposed terms for bridging are not acceptable, consider a partner-hosted SAP solution. Many certified SAP partners can quickly provide a hosted SAP system (with licensing included in a monthly fee). You could migrate the necessary data and users to that system for the interim period. Another alternative is to use SAP’s own cloud on a short-term contract (for example, a 1-year subscription to S/4HANA in the cloud or SAP HEC) to bridge the gap. These approaches enable you to pay only for the duration of the transition. Lastly, if feasible, speeding up the integration or data migration to eliminate the need for a long overlap can reduce costs — the shorter the interim period, the less you’ll pay for bridging.

Q5: What happens if we skip formal bridging and just share SAP access until we merge systems?
A5: Skipping a formal arrangement is very risky. SAP is likely to detect major corporate changes and could initiate an audit. If they find that users from one company have been using another’s SAP system without proper licensing, they will treat it as a compliance violation. The outcome can include: (1) being forced to purchase licenses retroactively at list price for all unapproved users (often costing millions), (2) penalties or back-maintenance fees for the unlicensed period, and (3) potentially immediate cessation of use – meaning SAP could require you to stop those accesses until compliance is resolved. In short, attempting to “fly under the radar” can lead to significantly higher costs and business disruption than obtaining a legitimate temporary license. It’s not worth gambling your ERP access; it’s better to work out a bridging solution upfront.

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