Open Source Software in M&A transactions

Due to the many advantages and possibilities offered by the use of Open Source Software (OSS), it is used directly or indirectly in all companies today – especially start-ups and companies that digitize their products rely on OSS

projects and communities to benefit from available developments, increase development speed, collaborate and save costs.

Your expert for questions

Marcel Scholze
Director at PwC Germany
Tel: +49 69 9585-1746

Open Source Software is software whose source code is free and openly accessible

This source code may be used, adapted and extended in your own software solutions and subsequently passed on either in the original or in modified form. These degrees of freedom are the core of OSS and its guarantee of success - nevertheless, OSS enjoys copyright protection and is usually provided by the author under defined conditions of use, i.e. licenses. The use of OSS components in violation of their licenses can lead to high penalties, loss of reputation and the loss of the permission to use them, i.e. a (court) prohibition of use up to a full product recall.

Why is OSS compliance important for deals and M&A

In the area of M&A transactions and deals, a key focus on the buyer's side is to understand whether the target has complied with software security aspects and license compliance when using OSS components. The seller side also improves its negotiating position if the (software) products for sale or their components do not involve any risks. Especially on the buyer's side, there is great interest in checking the proof of IP rights and the license-compliant use of open source. Since the maturity level of Open Source Software Management is not very high in many companies, it is imperative to get an overview of the possible risks. Only by this, immanent risks can be identified and appropriate measures to mitigate them be initiated or value adjustments be made. Companies that are looking to set up a joint venture or are planning to sell their own business also benefit if they have established or checked their OSS compliance early on, on the one hand to make this externally effective and on the other hand not to have to fear unplanned delays, value adjustments or even rejections in a transaction.

In this respect, Open Source Software compliance is now a mandatory part of due diligence for tech deals and transactions involving software or digital products and services.

PwC offers the solution for determining OSS compliance for transactions:

We offer services for buyer and vendor side or both partners of a joint venture, which can be individually adapted in depth and scope depending on criticality, company size, breadth of the software stack and number of relevant products. Essential components are usually:

  • The examination for a proper Open Source Software Management System.
  • The code scan of software products and software that is built into products.
  • The creation of Bill of Materials (BoM), i.e. lists of used OSS components and their licenses.
  • The licensing evaluation of license combinations and component architectures.

Particularly in transactions where the source code is an essential asset and must be treated as strictly confidential before the transaction is concluded, PwC is a necessary, experienced and trustworthy partner to carry out the relevant investigative acts of OSS due diligence. We always respect the confidentiality of company secrets and the confidentiality requirements of products and source code of all parties.

“It should be noted that software, and therefore OSS compliance risks, are nowadays inherent in all kinds of products, not just software products.”

Charlotte Schaber,PwC Legal AG, Lawyer for IP and OSS
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Marcel Scholze

Marcel Scholze

Director Open Source Software Services & IT Sourcing, PwC Germany

Tel: +49 151 16157049

Thomas  Urband

Thomas Urband

Senior Manager, lawyer, PwC Legal AG, PwC Germany

Tel: +49 160 9627-3689