The Hidden Risk in Every SaaS Codebase
Every modern SaaS application relies on hundreds or thousands of third-party libraries. Each of those libraries carries its own license terms, and some of those terms can create serious complications during an acquisition. Understanding license risk is not optional in M&A — it is a standard part of technical due diligence that can directly affect deal terms, valuation, and whether the transaction closes at all.
How License Risk Surfaces During Acquisitions
When a buyer acquires a software company, they are acquiring the right to use, modify, and distribute the software. If the software incorporates third-party libraries whose license terms conflict with the buyer's intended use, the buyer inherits a legal liability. This is why buyer's counsel and technical advisors always request a complete dependency and license inventory as part of due diligence.
The most common license-related concern in SaaS acquisitions involves copyleft licenses, particularly the GNU General Public License (GPL) and the GNU Affero General Public License (AGPL).
Understanding Copyleft Risk
Permissive licenses like MIT, Apache 2.0, and BSD allow software to be used in proprietary products with minimal restrictions. These licenses are generally considered low-risk in an M&A context because they do not impose conditions on how derivative works are licensed.
Copyleft licenses like GPL and AGPL are different. The GPL requires that any derivative work distributed to users must also be licensed under the GPL, with source code made available. The AGPL extends this requirement to software accessed over a network, which directly applies to SaaS applications. If a SaaS product incorporates an AGPL-licensed library, the seller may be required to make the entire application's source code available under the AGPL — a condition that fundamentally conflicts with a proprietary SaaS business model.
Real-World Consequences
According to Jason Gilmore, DependencyDesk founder and a technical due diligence expert with over 20 years of experience, "I've seen deals where a single AGPL dependency buried deep in the dependency tree triggered weeks of legal review and ultimately led to a price reduction. The seller had no idea the library was there because they had never conducted a thorough dependency audit."
License issues discovered during due diligence can lead to several outcomes: the buyer may require the seller to replace the problematic dependency before closing, the buyer may negotiate a price reduction to account for the remediation cost, the buyer may require indemnification provisions in the purchase agreement, or in extreme cases, the buyer may walk away from the deal entirely.
The LGPL Gray Area
The GNU Lesser General Public License (LGPL) occupies a middle ground. It allows proprietary software to link against LGPL-licensed libraries without triggering the copyleft obligation, provided the library is dynamically linked rather than statically compiled into the application. In practice, this distinction matters for compiled languages but is less relevant for interpreted languages like JavaScript, PHP, Ruby, and Python where dependency management works differently. Buyers' legal teams often flag LGPL dependencies for review regardless.
How to Identify License Risk
The first step in managing license risk is producing a complete inventory of all third-party dependencies and their licenses. DependencyDesk automates this by connecting to a GitHub organization and analyzing dependency manifest files across every repository. The analysis covers JavaScript (package.json), PHP (composer.json), Ruby (Gemfile), and Python (requirements.txt, Pipfile, pyproject.toml) and produces an exportable CSV report listing each dependency's name, version, and license type.
Dependencies where the license is not declared in the manifest file are flagged as "Unknown" so the seller or buyer can investigate manually. This is important because undeclared licenses represent unknown risk that must be resolved before closing.
Best Practices for Sellers
Sellers should conduct a dependency license audit well before entering an M&A process. Identify any copyleft-licensed dependencies, assess whether their usage triggers the copyleft obligation, and develop a remediation plan if necessary. Replacing a problematic dependency is far easier and less disruptive when done proactively rather than under the pressure of a deal timeline.
Producing a clean dependency disclosure early in the process demonstrates engineering governance and reduces the risk of surprises that can derail negotiations.
Getting Started
Generate a complete dependency and license report for your GitHub organization in minutes with DependencyDesk. Identify license risks before your buyer does.