It's difficult to make a phone call, browse the Internet, or use your car without encountering open source software (OSS). Samsung phones utilizing Google's Android operating system enjoy a 22.7% global market share, WebKit powers Apple's Safari and Google's Chrome browsers, and Ford recently released the software that supports its infotainment systems to the open source community. Yet, open source software often is misunderstood, and its effect on a target company's valuation frequently is overlooked in M&A financial models.
Unsurprisingly, the value of a commercial software company as an M&A target may be greatly diminished if it is obligated to release its software for free, yet numerous OSS licenses mandate this result. To ensure a buyer is protected in a technology-focused M&A transaction, it is crucial to include language addressing OSS in the purchase or merger agreement, which is discussed in this article.