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Obsessed with how companies manage, spend and save money, Jason writes about procurement, trade and supply chain issues @ Spend Matters. He has significant first hand experience developing and marketing technology and services products, has advised numerous companies on sourcing and related techniques as well as M&A pursuits.  In previous lives before tech, he was a management consultant and merchant banking analyst.

2 responses to “Predicting a Software M&A Frenzy: Are You Ready Contractually? Change of Control Clauses and Beyond”

  1. Jeff Gordon

    While I like Brian and Vinnie and respect their advice (and being pro-customer myself), this clause isn’t worth fighting that much for.

    First, virtually none of the enterprise-class software suppliers are going to give this language to you, regardless of how long you hold your breath. They’re bigger than most of their customers and can simply say “no” with greater force. Regardless, even if you wanted such language, what you’re essentially asking for is your money back simply because the supplier changed hands. At a minimum, the language would be tempered with sub-clauses that limited money back conditioned upon detrimental effects of the change in control (which would be hard to necessarily prove). At the end of the day, suppliers don’t want anyone messing with recognized revenue.

    Next, for mom-and-pop shops, you could probably squeeze them for this language… but do you think, if they’re essentially going out of business, that they’re going to have the money to give back? Probably not.

    What is MORE valuable to enterprise-class customers is the ability to support a product long after the supplier goes away. For that reason, we typically recommend getting source code escrow language that allows for the distribution of source code in the event of a dissolution or change in hands that results in a lack/diminishment of support.

    On the other hand, the M&A-related language that’s MUCH more customer favorable is language that allows for a) a divested entity to take a pro-rata amount of the software with them after divestiture for free without negatively affecting cumulative discounts received by the primary customer; b) the combination of licenses with the best set of license terms for acquired entities; c) the ability to add licenses to unlimited-use license counts based on organic AND inorganic growth (such as results from M&A activity); and, if you can get it, d) the ability to completely transfer a subset of licenses to an affiliate with acceptance of materially identical software licensing terms.

    These M&A-related terms will come in handy much more often – and you’ll actually stand a chance of getting them included in the contract, too.

  2. The Economics of SaaS

    […] See what colleague and fellow Enterprise Irregular, Jason Busch, had to say regarding a prior post I did on Material Change of Control clauses in software […]