Mergers and acquisitions are commonplace in the hosting space. According to Stratacore, a company that tracks acquisitions in the service provider space, 10 Billion was spent on acquisitions in the first half of 2017 alone.
At Altaris Cloud, one thing we see over and over is that the acquiring companies don’t do proper due diligence in one key area - software licensing. They review the financials closely and review the physical assets, but they don’t verify the software licensing position of the company they were either acquiring or merging with.
Then they get audited by Microsoft, gaps are identified from usage that pre-dates the acquisition, and Microsoft demands payment for such under-reporting, regardless of who owned the entity at the time. While both parties - the company doing the acquisition and the company being acquired - often end up in court, Microsoft doesn’t care. It’s not their dispute and their position is quite simple: when you acquire a hosting company you also acquire the customer contracts and related obligations.
Depending on the law in the particular jurisdiction, some funds may be recovered in court but that’s not the whole picture. You may well have over paid for the company you’ve acquired in the first place. Beyond the ‘fine’ levied for historical under reporting, the incorrect licensing position impacts the bottom line financials and EBITDA, typically a key variable used in determining the valuation of the company being acquired.
Mergers and acquisitions take months in the boardroom to iron out all the details. In parallel, you need to use that time to iron out all the details in the data center. It’s precisely during these times that the IT staff is overworked and likely worried about redundancy and the future of their jobs. They may be very guarded about the environments they manage for fear mistakes or inefficiencies will be exposed. That’s why it’s ideal to bring in a neutral third party. Altaris Cloud will establish a correct baseline for reporting in advance of a final acquisition (our engagements typically take from 4-6 weeks) as well as identify any historical exposure. We can also do an assessment on both environments to identify areas where consolidation or moving certain workloads to the public cloud makes sense.
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Small hosting companies grow quickly and IT staff don’t always have the time to develop a master design that will allow them to grow. Instead they quickly mount new servers as new customers come on board or existing ones grow. The result is something that is both hard to manage and track.
Mergers and Acquisitions give organizations an opportunity for a fresh start: redesign with growth in mind, consolidate and maximize capacity and put in an asset tracking system so you never over or underpay on licensing. Make it a science.