78
Legal Focus
JULY 2013
IT and software issues in M&A transactions
In light of the recent poor software management at a company during an M&A transaction that led to a bill of £113,222 to remedy licensing issues, the Federation Against Software Theft has urged companies to ensure their software assets are fully compliant in such transactions. To find out more about the IT and software issues to consider in M&A deals, Lawyer Monthly speaks to Duncan Turner from Dickson Minto W.S.
Please introduce yourself, your role and your firm.
I advise in relation to M&A on all aspects of intellectual property, IT and data protection law.
and commercial advice.
Dickson Minto W.S. is a corporate and commercial law firm with offices in London and Edinburgh. The firm deals with transactions of all sizes and complexity for a range of national and international clients.
How can companies ensure that their software assets are fully compliant in M&A transactions?
Companies should comprehensively audit their software assets prior to the transaction, so as to confirm ownership of software developed on their behalf, as well as to ensure the company and its group has the necessary rights to use third party software. Issues should be resolved in advance, as time constraints may prevent them being resolved during the transaction.
Companies should also ensure there are appropriate maintenance arrangements in place for key IT systems, including where appropriate placing source code in escrow for release in the event the developer breaches its maintenance obligations or becomes insolvent. Where a company is using open source software it is important to confirm how it is being used in order to ensure it is used appropriately and in compliance with applicable open source licences.
What are the consequences for failing to do this?
The consequences can be significant. Transactions may be delayed, or additional expense may be incurred
by the
www.lawyer-monthly.com www.lawyer-monthly.com target
company, or there may be reduction in the purchase price to reflect the problems with the software assets.
I also provide general IP/IT, data protection
Research by UHY Hacker Young suggests that M&As in the private sector have recovered to near pre-crisis levels. Is this something you would agree with? If so, why?
I don't necessarily agree that M&A activity has recovered to near pre-crisis levels, but there are some signs of increased M&A activity.
How complex is software compliance and risk mitigation when completing transactions?
It can be very complex. Factors which can increase complexity include the nature and extent of software used by a company, lack of documentation, and lack of knowledge (particularly when confidentiality concerns prevent the involvement of those in the company who have the necessary knowledge regarding the IT systems).
Can you tell us about any recent, particularly interesting M&As you have been involved in?
We recently acted for a client who was acquiring a business which made use of a website development system and which was a key system for the business. The system had been developed over a number of years by different companies. The client wanted assurance that the target owned the rights in the system, but there was no documentation evidencing any assignment of rights in the software, and two previous owners of the software had been dissolved. Ultimately the issue delayed the transaction, and the vendor was forced to accept a reduction in the purchase price to reflect the risk regarding the rights to use this software.
How can deals be structured to reduce software license compliance risks? What licensing issues need to be taken into consideration?
Company groups may wish to arrange for a single group company to be responsible for all software licences so that management of licensing is better coordinated.
Where part of a group is being sold, it is important to make sure that it has the necessary rights to use the software it uses in its business. Given most software licences do not permit assignment without consent, the vendor should ideally obtain consent to assign software licences or arrange for new licences to be obtained. Otherwise purchasers should be provided with details of the licences they will need to obtain for the business following the acquisition.
Is there anything else you would like to add?
Companies shouldn't underestimate how important it is to ensure they have the necessary rights to use their IT systems. LM
Contact:
duncan turner dickson Minto W.S.
tel: +44 (0) 207 649 6815 tel: +44 (0) 131 225 4455 Mobile: +44 (0) 77 2567 0135 Email:
duncan.turner@dmws.com
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