On July 28, Oracle surprised investors by announcing that it has entered
into a definitive agreement to acquire Netsuite, the very first cloud company.
In fact, analysts expected Oracle to continue to buy small and mid-sized cloud
companies, but NetSuite is a mega acquisition valued at about $9.3 billion.
According to Oracle, it expects the acquisition to be immediately accretive
to earnings on a non-GAAP basis in the first full fiscal year after closing.
The transaction is valued at $109 per share in cash, or approximately $9.3
billion, a premium of 19% to NetSuite's closing stock price of $91.57 on the
day before the announcement.
As seen by Arie Goren of AmigoBulls.com, "the acquisition of cloud
business application software company NetSuite is a smart move by Oracle, and
it is not paying an excessive price for the deal. The acquisition fits well
into Oracle's strategy of promoting its cloud products at the expense of
on-premise products. NetSuite has developed a single system for running a
business in the cloud for 18 years, and the deal will give Oracle a better
access to the mid-market fast-growing commercial software-as-a-service (SaaS)
sector, and strengthen its line of SaaS applications. What's more, Oracle Chairman Larry Ellison personally owns almost fifty
percent of NetSuite, and NetSuite runs on Oracle databases. NetSuite has
more than 30,000 customers in about 100 countries, most of them small and
mid-sized business customers. As such, some possibility may arise in selling
Oracle products to NetSuite customers and more so in the sale of NetSuite
products across Oracle's extensive worldwide customer base."
After a spate of acquisitions in the CRM market by Microsoft and
Salesforce, Oracle following suit with the purchase of NetSuite, even though
Oracle has its own CRM and ERP offerings, the NetSuite acquisition may flesh
out the Oracle portfolio by including e-commerce capabilities. SAP has Hybris
and its Customer Experience Suite; and Salesforce recently purchased Demandware
in a similar move to flesh out e-commerce capabilities to make it easier for
sales and marketing to reach customers by understanding their customer service
needs and by enabling customer service agents to upsell to customers. "The
walls between sales, service and marketing have come down," said Keith
Block, Salesforce's chief operating officer, about the Demandware acquisition.
Brent Leary, a principal at CRM Essentials, a CRM consultancy, said that
the NetSuite acquisition helps Oracle flesh out its portfolio, particularly by
having different components adjacent to CRM, including ERP and commerce
functionality that works seamlessly with its platform.
"Oracle has looked at ways to compete more heavily and leverage their
strengths in the CRM market," Leary said. "And their strengths are in
having these other pieces to the puzzle and being able to pull them together.
NetSuite adds an interesting component from an ERP perspective because, over
the past couple of years, they have been driven into combining commerce into
their CRM solution."
Finanlly, other reasons include the fact that there’s been a 10-year
collapse in infrastructure hardware and software pricing due to open source and
cloud. Oracle has been insulated because of its lock on mission critical apps –
but it’s not immune. Many workloads in Hadoop, Mongo, Cassandra and emerging AWS
databases like Aurora, Redshift and Microsoft SQL on Azure are chipping away at
the periphery of Oracle’s database franchise.
Oracle’s response in situations like this has typically been to shift the
game – in this case moving aggressively into cloud and SaaS. A previous example
of Oracle chasing profits versus higher growth revenue is its acquisition of
Sun where Oracle shed Sun’s lower margin server business, shrinking the former
company, and instead building a suite of integrated high margin appliances.
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