Are you prepared if your software vendor (procurement or other) gets acquired?

If you’ve got an interest in software procurement – generally or procurement specific (P2P, sourcing etc.) then I strongly suggest you take 5 minutes to read Jason’s post here on software change of ownership contracts clauses. Jason expects to see a lot of activity in our own market area this year, so this is highly relevant for many procurement functions.

I remember some horror stories from my days as a CPO -when a provider who was a friendly medium sized software house got taken over by … well, I better not name them, but in my day there were 2  big global firms (not specifically in the supply chain sector I should say) who were a nightmare to work with.

So protecting yourself contractually is key and you should absolutely be insisting on a material change of control clause in your contract/license.  Jason points out that this isn’t always easy; but clearly you’re in  a better position if its a significant contract.  He also links to another excellent article from Brian Sommer - a real expert in this area.

Brian notes that vendors “absolutely hate these clauses…they believe that if too many of their contracts contain language that a potential acquirer would find economically challenging, then the value of their firm is adversely affected.”

But what could go wrong? As Brian says,

If a new company acquires this software firm, then the ‘investment’ may go down the drain as the new acquirer could:

- kill off the product and force march the installed base to their product instead (hence, doubling the implementation cost)
- be one of the companies the customer previously eliminated from the selection as being inferior or poor functional fit
- cease to maintain the acquired product

Jason suggests that you allow adequate time in these discussions  to get what you want. “The legal wrangling and back and forth between your counsel and said vendors could take days or weeks, hence the extra time to budget for. But in the end, it could very much be worth it”.

I would second that.

Comments

  • pietro:

    …..working since years within the sw procurement, I also fully agree with you that is absolutely essential to finalize and insist in such clauses, today even more than before. I see how software manufacterer are acquiring competitors and third parties like me walking to the supermarket.
    Finally, I never made the experience, for all the companies I worked before or doing today, not to terminate a contract including such a relevant passus and I would also recommend any to my collegues to do so. From a procurement contractual prespective I also evaluate a contract without the “change of control” sentence not only as a dangerous one but almost as a negligent works. No Manager would sign/approve such a contract.

    with best regards
    Pietro Mutolo
    CEO ITALCONSOR Procurement Services

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