Contact: Brenon Daly
After consolidating huge swaths of the software landscape, Oracle has turned its attention to networking with a landmark acquisition. The company will hand over about $2bn in cash for Acme Packet, which Oracle hopes will allow it to capture more business with service providers and enterprises as networks look to deal with higher-level traffic like voice and video in which Acme specializes. Acme – which gets about three-quarters of its revenue from product sales and the remaining one-quarter from maintenance and support – counts about 1,900 service providers and enterprises as customers.
However, Acme has run into difficulties recently. Sales dropped almost 10% through the first three quarters of 2012, and the company has found itself running in the red after years of profitable operations. Before Oracle’s bid, Acme shares had dropped more than 20% over the previous year, underperforming nearly all of the company’s beaten-down networking rivals. Even reflecting the premium, Oracle is acquiring Acme at just half the level that Acme commanded on its own as recently as mid-2011.
Not that Acme is ending its six-and-half-year run as a public company on the cheap. Oracle will hand over $29.25 for each share of Acme, or an enterprise value of $1.7bn. That works out to 5.9x Acme’s trailing sales, which is roughly inline with most of Oracle’s other big-ticket purchases. However, we would note that the 5.9x valuation is more than twice the median valuation for the 50 largest transactions over the previous year, according to The 451 M&A KnowledgeBase.
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