How To Protect Yourself In A Software Acquisition

Consider the possibility Gary Scholten, CIO at Principal Financial Group, considers the potential for acquisition during the due-diligence phase of choosing a software vendor, particularly if the company is in a fledgling area of technology. "Sometimes this leads us to say we're not going to take a chance on software in this space, where companies are being acquired and there's significant changes," Scholten says.

Hold fast to agreed-upon prices When a company's software vendor is acquired, it should require the acquiring company to honor the terms and conditions of its original contract for at least a few years, including maintenance prices, says Gartner analyst Alexa Bona, who specializes in software licensing. "We're seeing an increase in maintenance fees as a result of the acquisitions," she says. For example, Oracle's standard maintenance fee is about 22%, among the highest in the industry, says Bona, while Siebel's fees ranged between 15% and 17%, and PeopleSoft's were about 20%.

Beware architecture promises Be careful about the big four's plans for service-oriented architectures, such as Oracle's Fusion and SAP's NetWeaver. As a technological approach, SOA offers benefits, but it can give vendors an excuse to jack up prices. As SOA-based products emerge, Bona predicts, vendors will seek premiums of 30% or more over pre-SOA versions.

Go beyond the name Most customers license a product by name, Bona says, but in a contract, they don't define what's included in that name. That means an acquiring vendor can come back later and say, "We just rebundled this product, and it's not called a business suite anymore; it's called a specific process." Bona recommends customers include in contracts the basic functionality of the software that's been licensed, with a clause that says if it's renamed, rebundled or relicensed in any way, they're not going to pay anything extra for it.

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