nexB: Software Audit for Acquisition Due Diligence
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This document provides an overview of a software audit process conducted by nexB for acquisition due diligence. It discusses nexB's experience and services, common license violation risks found in audits, the audit process including preparation, analysis, review and reporting, tools used, reasons to choose nexB, and lessons learned from past acquisitions.
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nexB: Software Audit for Acquisition Due Diligence
- 1. nexB - Software Audit for Acquisition Due Diligence © 2014 nexB Inc.
- 2. © 2014 nexB Inc. Agenda • About nexB – What nexB does – Our experience • Software Audit: M&A – License Violation Risks & Recent Audit Issues – Software Audit Process – Software Audit Tools • Additional Information – Why nexB? – Contact us – Lessons Learned
- 3. © 2014 nexB Inc. What nexB does • Enable component-based software development – Software provenance analysis services – Software asset management tools • Software audit services – Acquisitions – Software product releases • Active OSS developers • Expertise in all software IP About nexB
- 4. © 2014 nexB Inc. Our experience is our difference • Recognized by the buyers and target companies as: – experts in software origin analysis – a fair and trusted intermediary • We identifies issues along with practical remediation steps • 350+ software audit projects completed to-date About nexB
- 5. © 2014 nexB Inc. License Violation Risks Software audit: M&A source code available source with limitations (Proprietary) Copyleft FOSS Attribution Binary-only (Proprietary) Free Software Freeware / Shareware many Java libraries Microsoft shared source Sun SCSL GNU GPL GNU LGPL MPL CDDL BSD MIT Apache EPL Adobe Reader
- 6. © 2014 nexB Inc. Recent Audit Issue Examples • Dependency Issue “Workarounds” • License violation Software audit: M&A
- 7. © 2014 nexB Inc. Emerging Audit Issue Examples • Cloud computing and Dual Licensing • Personal Devices and Application store markets Software audit: M&A
- 8. © 2014 nexB Inc. Software Audit Process Software audit: M&A
- 9. © 2014 nexB Inc. Software Analysis Scope Software audit: M&A Original Code Open Source Code Commercial Code
- 10. © 2014 nexB Inc. Software Analysis Deliverables • Complete inventory of OSS and third-party components in Development codebase(s) • Bill of materials for Deployed product components • Specific Action items and recommended actions for resolution that can be factored into the deal terms – Including possible exposure for older product versions – Detailed analysis for copyleft “contamination” • Checklist of commercial components as input to due diligence for contract review • Analysis of how much code is original versus borrowed (OSS) or purchased (Commercial) Software audit: M&A
- 11. © 2014 nexB Inc. Preparation – 1 week (1/2) • Establish NDA with seller – Two-way or three-way • Scope audit effort – Audit profile (questionnaire) – Size of code base - # files and lines of source code – Disclosure of known third-party and open source software – Onsite or remote access to the code • Prepare/agree quote – always fixed fee, no surprises • Schedule project Software audit: M&A
- 12. © 2014 nexB Inc. Preparation (2/2) è Many targets are anxious about the process – General level of anxiety is inversely proportional to prior M&A experience of executives – We do some hand holding to make them feel comfortable – Assure seller that they review all findings first so no surprises – Explain the process and tools to the seller Software audit: M&A
- 13. © 2014 nexB Inc. License & Origin Analysis – 2 weeks (1/2) Analysis Activities • Scan files for license, copyright and other origin clues • Match target code to reference code repository for origin and license detection (based on digital “fingerprints”) • Map Deployed code to Development code to: – Validate that we have a complete Development codebase – Filter issues based on the effective Deployed/Distributed code • Analyze software interaction and dependency patterns for copyleft- licensed components as needed • Additional domain-specific investigations typically for embedded devices and applications of media codecs Software audit: M&A
- 14. © 2014 nexB Inc. License & Origin Analysis (2/2) Results • Software Inventory and Bill(s) of Materials • Draft Action items & recommendations Software audit: M&A
- 15. © 2014 nexB Inc. Review & Report – 1 week (1/2) Activities • Draft findings review with product team – Ask product team to respond to each Action item • Accept recommended solution or propose another approach • Acknowledge & investigate • Not a request to fix anything during the audit – Incorporate feedback and answers from product team into the Software BOM and Report – We may “agree to disagree” – e.g. we then present two points of view: ours and the seller’s. • Complete final report – Second review cycle with product team – Release the report – Conference call with buyer to present findings & answer questions Software audit: M&A
- 16. © 2014 nexB Inc. Review & Report (2/2) Results • Final Software Inventory / BOM spreadsheets • Final Report - narrative with executive summary, project data and summary of the Action items and Responses Software audit: M&A
- 17. © 2014 nexB Inc. Software Audit Tools • nexB typically uses a combination of tools for a software audit – Our own DejaCode™ toolkit is the primary tool – Other tools used as needed or as licensed by a customer (open source or commercial) • Multiple layers of analysis – Direct scan for license and copyright notices – Component matching for open source and publicly available third- party components (freeware/proprietary) – Analysis of source code and pre-built libraries (binary) – Interaction and dependency analysis as needed • Review and validation by software experts • All require expert humans to interpret the results! Software audit: M&A
- 18. © 2014 nexB Inc. Why nexB (1/2) 100% of our customers are repeat customers and references We have a balanced approach – Automated code analysis AND analysis by software experts – Direct consultation with engineering, management and legal teams – Concrete Action items with recommended nexB action resolution and seller Responses Additional Information
- 19. © 2014 nexB Inc. Why nexB (2/2) • Trusted third party – Mitigates confidentiality concerns of a seller company – Maintains proper segregation of information during acquisition negotiations – Enables objective analysis with appropriate consideration of feedback from all parties Additional Information
- 20. © 2014 nexB Inc. Contact us Contact person: Pierre Lapointe, Customer Care Manager [email protected] + 1 415 287-7643 More information: http://www.nexb.com/ Additional Information
- 21. © 2014 nexB Inc. Lessons Learned – Acquisitions (1/2) • Schedule is always a major issue • Initiate a software audit early because – Seller company will probably not have done this before – Negotiation of an NDA takes longer than you expect – Negotiation of access to artifacts and people takes longer than you think • The review of findings and recommendations may require several iterations with target company – Get answers for open issues – Get agreement about remediation strategies – Get agreement that report is objective and reasonable Additional Information
- 22. © 2014 nexB Inc. Lessons Learned – Acquisitions (2/2) • Identify the “crown jewels” and key platforms of the seller technology – Concentrate the audit on the most important parts – For products with multiple operating system versions, focus on the most important platforms • Some issues can be specific to the open source policies of the Buyer – For instance tolerance for certain version of open source licenses or proprietary Linux drivers varies among companies – We apply Buyer company policies if available, – Otherwise we apply “conservative” community standards – Exceptional cases may require additional discussion with legal and and business teams to evaluate the risks Additional Information