The Role of Open-Source Software in Technology Due Diligence for M&A

In the world of mergers and acquisitions (M&A), the real keyword is dynamics, thus one of its main pillars is the technology due diligence. One crucial area that has gained prominence in recent years is the role of open-source software (OSS) in this activity. Open-source software, with its collaborative development model and wide-ranging applications, presents unique opportunities and challenges for companies involved in M&A activities. This article explores the multifaceted and growing important role of OSS in technology due diligence, highlighting its impact on risk assessment, innovation potential, and strategic value.

A Brief on Open-Source Software

In a nutshell, open-source software refers to software with source code that is freely available for anyone to view, modify, and distribute. Unlike proprietary software, which is owned and controlled by a single entity, OSS is generally developed collaboratively by a community of developers. 

Risk Assessment and Compliance

One of the primary concerns during M&A due diligence is assessing the target company's technology stack for potential risks. Open-source software can introduce both legal and operational risks that must be carefully evaluated. Legal risks stem from the various licenses under which OSS is released. These licenses, such as the GNU General Public License (GPL) or the Apache License, have specific requirements regarding usage, modification, and distribution as they are more or less restrictives. Failure to comply with these licenses can result in legal disputes and financial penalties.

A due diligence must include a thorough audit of the OSS components used by the target company, ensuring that not only they are up-to-date and free from vulnerabilities, but they are fully licensing compliant.

Strategic Value and Integration

The strategic value of open-source software extends beyond immediate technological benefits. For acquiring companies, understanding the target's OSS strategy can reveal synergies and opportunities for integration. For instance, if both companies use similar OSS components or contribute to the same projects, it can facilitate smoother integration of systems and teams post-acquisition.

Moreover, OSS can be a valuable asset in terms of intellectual property (IP). While OSS itself is freely available, the expertise and customizations built around it can constitute significant IP. Assessing the target company's proprietary enhancements to OSS can uncover unique capabilities that enhance the overall value of the acquisition.

Best Practices for OSS Due Diligence

To effectively incorporate open-source software into technology due diligence, companies should adopt several best practices:

1. Comprehensive Inventory: Create through a SBOM a detailed inventory of all OSS components used by the target company, including their versions and licenses.

2. License Audit: Conduct a thorough license audit of all OSS components to ensure compliance and identify any potential legal risks.

3. IP Evaluation: Assess any proprietary modifications or enhancements made to OSS components and their contribution to the target's IP portfolio.

In Short…

Open-source software is the fundamental basis in the technology field, influencing innovation, cost-efficiency, and strategic value. In the context of M&A, understanding the implications of OSS is essential for informed decision-making. By incorporating comprehensive OSS due diligence, companies can better assess risks, identify opportunities, and ultimately drive successful mergers and acquisitions.

Note: The preceding text is provided for informational purposes only and does not constitute legal nor business advice. The views expressed in the text are solely those of the writer and do not necessarily represent the views of any organization or entity. This information should not be relied upon as a substitute for obtaining legal advice from a licensed attorney or other qualified legal professional regarding your specific situation.

#OpenSourceSoftware #DueDiligence #MergersAndAcquisitions #Technology #Business