nexB: Software Audit for Acquisition Due Diligence


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nexB provides products and services for software component management and license compliance. We have unique expertise in complex embedded devices and large server-based or appliance-based software products.
We help companies determining what is in their software or in software provided by their suppliers. For more information, please visit

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nexB: Software Audit for Acquisition Due Diligence

  1. 1. nexB - Software Audit for 
 Acquisition Due Diligence © 2014 nexB Inc.
  2. 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. 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. 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. 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
  6. 6. © 2014 nexB Inc. Recent Audit Issue Examples •  Dependency Issue “Workarounds” •  License violation Software audit: M&A
  7. 7. © 2014 nexB Inc. Emerging Audit Issue Examples •  Cloud computing and Dual Licensing •  Personal Devices and Application store markets Software audit: M&A
  8. 8. © 2014 nexB Inc. Software Audit Process Software audit: M&A
  9. 9. © 2014 nexB Inc. Software Analysis Scope Software audit: M&A Original Code Open Source Code Commercial Code
  10. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 20. © 2014 nexB Inc. Contact us Contact person: Pierre Lapointe, Customer Care Manager
 + 1 415 287-7643 More information: Additional Information
  21. 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. 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