What Is EA Novation and Why Does It Matter?
Novation is a legal mechanism by which one party to a contract is replaced by another. In the Microsoft Enterprise Agreement context, EA novation is the formal process of transferring all rights and obligations under an existing EA from the original signatory entity — typically the target company in an acquisition — to the acquiring entity or a new combined legal entity.
Novation matters because a Microsoft Enterprise Agreement is not an asset that passes automatically to a new owner when a corporate transaction closes. The agreement exists between Microsoft and a specific named legal entity. When that entity ceases to exist, is absorbed into another, or is sold as part of a divestiture, the agreement does not automatically follow. Without a formal novation or transfer process, the new entity deploying software under the old agreement is technically doing so without Microsoft's contractual authorisation — creating compliance exposure that can surface in an audit or True-Up review.
This is not a theoretical risk. Microsoft's licensing audit function is aware of corporate change events. When a significant acquisition is publicly announced, Microsoft's account teams and Software Asset Management teams are alerted. If you wait for Microsoft to come to you, you are negotiating from weakness. The organisations that handle EA novation well initiate the process themselves, with documentation, in the 60-90 days following deal close.
The Three Paths for EA Handling in an M&A Scenario
When a corporate transaction affects the legal entity that holds a Microsoft EA, there are three strategic paths, each with different commercial and operational implications. The right choice depends on the relative size of the parties, the remaining term of each agreement, and the direction of the acquiring organisation's Microsoft strategy.
Path 1: Formal Novation — Transfer the EA to the New Entity
A formal novation replaces the original customer entity with the new entity in the EA contract. The process requires executing a Contract Novation Agreement — a formal legal document signed by the transferor (the original EA holder), the transferee (the new entity), and Microsoft (or the authorised reseller who manages the agreement). The Novation Agreement is not a template Microsoft provides on request; it requires negotiation and review by Microsoft's legal and licensing teams, which typically takes 4–8 weeks from submission of a formal request.
The documentation required includes: proof of the corporate transaction (executed merger agreement, acquisition completion certificate, or equivalent), identification of both legal entities, confirmation of the agreement numbers being novated, and written acceptance from Microsoft. Verbal assurances from your Microsoft account team that the novation will be processed are insufficient — the novation is not effective until the Novation Agreement is countersigned.
Formal novation is the cleanest outcome when the target company's EA has favourable terms that the acquiring company wishes to preserve — for example, deeply discounted pricing or Software Assurance rights that would otherwise be difficult to renegotiate. It preserves the agreement in full, including pricing, SA coverage, and renewal dates. The downside is administrative complexity and the 4–8 week processing window, during which the transferred agreement is in a state of uncertainty.
Path 2: Licence Transfer Without Novation — Perpetual Licences Only
For organisations holding perpetual volume licences rather than EA subscription products, a separate Licence Transfer process (distinct from EA novation) governs transferability. Microsoft's Volume Licensing policy permits transfer of fully-paid, perpetual licences between entities in connection with genuine corporate transactions — mergers, acquisitions, divestitures, and spin-offs. The key word is "genuine": Microsoft will not approve transfers structured to circumvent volume discount pricing tiers or avoid True-Up obligations.
The Licence Transfer process requires submitting a Licence Transfer Form to Microsoft, identifying the specific products being transferred, the transferring and receiving entities, and the legal basis for the transfer. Microsoft then issues formal written confirmation of the transfer. This confirmation is the document that establishes the receiving entity's licence entitlement for audit purposes. Without it, those licences legally remain with the transferring entity.
Subscription products — all Microsoft 365 products, NCE subscriptions, Office 365 — cannot be transferred through this mechanism. They must be terminated and re-provisioned under the receiving entity's agreement. This distinction is often missed: IT teams assume that because perpetual licences can be transferred, subscription licences can be too. They cannot. Subscription licences must be reassigned through new subscriptions in the receiving entity's commercial vehicle, which can create a gap period if the timing is not managed carefully.
Path 3: New EA for the Combined Entity at Renewal
The third path — and Microsoft's increasingly preferred commercial outcome — is to let existing agreements run to their natural expiry and use the renewal event to establish a new EA for the combined entity. This approach avoids mid-term novation complexity and gives the combined organisation a clean commercial start. It also, not coincidentally, gives Microsoft the opportunity to re-anchor pricing to current list rates and to push the MCA-E model rather than renewing a traditionally structured EA.
This path is appropriate when both agreements are within 12–18 months of renewal, when the target company's EA terms are not materially better than what the acquiring company can negotiate at renewal, or when the combined entity's size and structure creates new leverage that makes a fresh negotiation commercially preferable to preserving existing terms. It requires careful management of the interim period — maintaining both agreements independently, managing dual True-Up obligations, and ensuring that users in the acquired entity are correctly covered under the relevant agreement at all times.
The Novation Process: Step by Step
For organisations choosing formal novation, the process follows a predictable sequence. Understanding each step helps you set realistic timelines and avoid the most common delays.
The first step is identifying all agreements requiring novation. A corporate transaction may affect multiple agreements — an EA for Microsoft 365, a separate Server and Cloud Enrollment, an Azure subscription agreement, and potentially a Dynamics 365 agreement. Each must be novated separately; a single novation request does not automatically cover all Microsoft agreements held by the transferring entity.
The second step is assembling the documentation package. Microsoft requires the executed corporate transaction document (the merger agreement or acquisition agreement), a formal request letter from the receiving entity, confirmation of the agreement numbers, and legal confirmation of the new entity's standing. Incomplete packages are the most common cause of delay; Microsoft's processing team will reject incomplete submissions and restart the clock.
The third step is submitting the request to the correct Microsoft team. In most EA relationships, the reseller manages Microsoft communication — but for a novation, direct engagement with Microsoft's Volume Licensing Service Center is required in parallel with the reseller notification. Your Microsoft account team can expedite the routing, but they cannot substitute for the formal submission.
The fourth step is reviewing the draft Novation Agreement that Microsoft produces. This document should be reviewed by your legal team, not simply accepted as presented. Microsoft's standard novation language includes provisions that effectively re-set your agreement under current terms in some cases — particularly around pricing and Software Assurance continuity. If you are novating an agreement with better-than-current pricing, ensure the novation language preserves rather than supersedes the existing pricing terms.
The fifth step is execution and filing. Both parties and Microsoft must countersign. Once executed, retain the document securely — it is the legal basis for your organisation's entitlement to use the software under the novated agreement and will be required in any future audit or compliance review.
Divestiture: The Mirror Image of Acquisition Novation
When an enterprise divests a business unit, the licensing challenge runs in reverse. The divested entity needs its own Microsoft commercial structure from Day 1 of independence, yet it typically has no existing Microsoft relationship of its own — all its licences have historically sat under the parent organisation's EA.
Microsoft must issue a new agreement for the divested entity, and licences applicable to the divested unit must be formally transferred out of the parent's EA. This process is more administratively complex than acquisition novation because it involves carving out licence entitlements from a larger active agreement rather than simply moving an entire agreement to a new name.
The practical challenges in divestiture scenarios include: identifying which perpetual licences are attributable to the divested business unit (particularly for shared infrastructure products like Windows Server and SQL Server), negotiating the split of Software Assurance coverage, establishing new Azure subscriptions and tenant infrastructure for the divested entity, and ensuring continuity of Microsoft 365 access for divested users during the transition. Each of these requires co-ordination with Microsoft and, in most cases, a dedicated workstream in the separation management office.
Timing is critical. Divested entities operating on the parent's licences after separation are technically non-compliant from the moment the legal separation is effective. The parent entity, equally, is carrying licence commitments for a business unit it no longer owns — which may inflate its True-Up count and EA footprint. Both sides have a financial incentive to complete the licence separation promptly; both sides also tend to prioritise the operational separation over the commercial one. This is where the licensing workstream needs dedicated resourcing and a hard deadline.
Commercial Strategy: Using Novation Timing as Leverage
One aspect of EA novation that most organisations fail to leverage is its commercial timing. A formal novation request gives you a structured conversation with Microsoft at a time when they have an operational reason to engage. That engagement window is an opportunity to renegotiate terms alongside the administrative transfer.
Specifically, if the acquiring organisation's EA is due for renewal within 12 months of the corporate transaction, the novation process can be used to surface a renewal negotiation simultaneously. Rather than processing the novation and then initiating a separate renewal discussion, the two can be combined into a single commercial event — one that covers the combined entity's total Microsoft footprint and creates material leverage based on consolidated volume.
Microsoft's fiscal year ends June 30, with Q4 running April through June. Microsoft field account managers have maximum quota pressure and negotiating authority in Q4. If your corporate transaction closes in the first half of the calendar year, and your EA renewal falls within the next 12 months, timing the novation and renewal negotiation to land in Q4 delivers the best commercial outcome. This is not always feasible — deal timing is determined by many factors outside the buyer's control — but when it is achievable, the incremental discount available in a Q4 combined novation and renewal versus a non-Q4 standalone renewal is typically 5–8 percentage points of additional discount depth.
Current standard EA discounts sit at 10–20% off list, down from the 15–25% that was achievable before Microsoft's 2022 commercial model changes. Monthly NCE commitments carry no discount. Annual NCE commitments yield up to 5%. The EA structure, for enterprises with the scale to qualify, remains the best commercial vehicle for combined entities emerging from M&A — but that advantage must be actively negotiated. It does not arrive by default.
Need to navigate EA novation or transfer following a corporate transaction?
Our Microsoft EA advisory specialists manage the full novation process and use the transfer event as leverage for better commercial terms.