Reviewing software before you sell will prevent IT headaches later.
No one would sell his or her company without consulting the company’s CFO and general counsel on accounting and legal issues. But what about the chief information officer, or CIO? Usually, the obvious IT issues may be covered, such as intellectual property, proprietary software and applications, contracts with carriers, etc. Software licensing, however, gets short shrift. In reality, not focusing on software licensing issues could cost you a great deal--and may jeopardize the sale of your company.
We have all heard a story about the software company that starts in someone's garage and after two years sells for millions. However, creating great technology or Web applications does not exempt the company from software licensing laws. Likewise, the manufacturing or construction company with hundreds of employees that has purchased and licensed third-party software for its operations must follow the same licensing regulations. Nobody is exempt.
It is almost impossible to think of a successful company that does not use computers. Many companies have more PCs than employees. When a company sells or merges, there are some employees who do not make the transition and exit the company. Are they all happy? It takes only one call to the Business Software Alliance by any employee, or anyone, and your company could face a software audit. A company with 1,000 or more employees could easily face fines ranging from a few thousand dollars to millions.
When performing your due diligence, make sure you review the software licensing for each type of software used by the company.
Most companies use PCs to operate, and Microsoft Office is the most common software used in business today. Microsoft requires that the company have the correct licenses for each machine running MS Office Suite, in the correct version.
This is not just Microsoft; big software fines are common from Adobe or Oracle. Even virus-protection companies such as MacAfee or Norton may levy fines if software licensing is not up to date.
Software used on servers must also be licensed. Servers need licenses for both the operating system, such as Windows 2008 or 2012 Server, and for the application, such as Exchange or SharePoint.
The CAL, or client access license, is the most expensive server-related license required. A variety of CALs is required to operate your Microsoft network. A separate CAL is required per user per function. For example, if your company runs Exchange for email and has 100 mailboxes for 90 users, the following licenses are required:
Microsoft Windows 2012 Server for the server that runs email
Microsoft Exchange 2010 or 2013--licensing for the mail application
One Exchange CAL for each user--so you must have 90 Exchange CALs
Because Exchange uses Windows authentication, you need 90 Windows CALs.
CALs are generally sold in a bundle, so you should have some version of Windows Professional or another CAL that includes Windows, Exchange, SharePoint, and Linc.
Some companies may have a device CAL rather than a user CAL, so you should check to determine if a device CAL is in place.
You should also verify the version on your CALs. If your company was using Windows 2003 Server and owns 2003 Server CALs, and you recently upgraded to Windows 2008 Server, the CALs must be upgraded as well. Windows 2003 CALs are invalid when used with a Windows 2008 Server.
Finally, during due diligence, ask if the company has Microsoft Software Assurance. Among its many benefits, it acts as an insurance policy from Microsoft. You pay more for your software when you purchase it, but you automatically receive upgrades to the new versions when available.
As we all know, there are hundreds of issues to review during the mergers and acquisitions process. If you are thinking about selling your company, you should create an IT licensing checklist that is reviewed regularly to ensure you are licensed to sell.