Tag: ORCL

Oracle buys big, again

Brenon Daly

Contact: Brenon Daly

Announcing its third deal in just the past month, Oracle said Monday that it will pay about $1.5bn for customer service software provider RightNow Technologies. The purchase brings the acquisitive software giant even closer into competition with salesforce.com, which has also used M&A to expand its customer service offering. However, true to form, the deals by the rivals underscore their wildly different approaches to dealmaking.

For Oracle, bigger appears to be better. The price of its planned purchase of RightNow, which is expected to close by early next year, is a whopping 50 times larger than the amount salesforce.com spent on InStranet back in August 2008. (Salesforce.com handed over $31.5m for InStranet.) While RightNow counts more than 2,000 customers, InStranet had just 50 at the time of its acquisition. And, finally, another key difference: Oracle is valuing RightNow at more than 6 times trailing sales, which is three times the multiple salesforce.com paid for InStranet.

Of course, as the chief consolidator of the software industry, Oracle is accustomed to making big moves. In fact, its pending purchase of RightNow ranks as only its sixth-largest purchase. (It has done more than 80 deals over the past decade.) As a point of comparison, we’d note that Oracle’s single acquisition of RightNow is larger than the $1bn or so that salesforce.com has spent on the 18 deals it has announced in its entire history. We’ll have a full report on Oracle’s pickup of RightNow in tonight’s Daily 451.

Oracle’s unlikely acquisition

Brenon Daly

Contact: Brenon Daly

After spending last week with its customers and partners at its annual trade show, Oracle will be meeting later this week with its owners. The company’s annual shareholder meeting is slated for Wednesday. If the talk at OpenWorld is any indication, the question of M&A is almost certain to come up during tomorrow’s meeting of shareholders in the acquisitive company. Over the past decade, Oracle has purchased more than 80 companies at a total cost of more than $40bn.

Given some of the recent remarks, however, we’re fairly confident in scratching at least one name off of any potential shopping list: Hewlett-Packard. Some people have recently suggested that buying the reeling HP would get Oracle significantly closer to its goal of mirroring IBM’s strategy of providing not only single technology products, but also integrated systems as well as services to support the products. (The fact that Oracle hired ousted HP honcho Mark Hurd last year only added to the intrigue around the possible pairing.)

At Oracle’s meeting with financial analysts during OpenWorld, CFO Safra Catz fielded a question about the company’s appetite for a (hypothetical) transaction valued in the tens of billions of dollars. While not speaking specifically about HP, Catz made it nonetheless pretty clear that Oracle – and more to the point, her boss Larry Ellison – would be extremely unlikely to do a deal like that.

The reason? In all likelihood, Oracle would probably have to use at least some equity to cover the purchase of a company like HP, which currently has an enterprise value of $64bn. (And that’s without any premium on a stock price that is down 40% so far in 2011.) Noting that CEO Ellison owns some 1.1 billion shares of Oracle, Catz summed up the calculus this way: Would Ellison really want to trade some of his stake in Oracle, which she described as having its strongest-ever product portfolio, for a chunk of HP? That’s not a ‘compelling’ trade, she said dismissively.

Echoes of Oracle in Infor’s reach for Lawson

Brenon Daly

Contact: Brenon Daly

Now that Lawson Software has agreed to a sale to Infor Global Solutions, it’s perhaps worth speculating about just how much Charles Philips learned about the art of M&A during his previous job. Philips, of course, currently serves as CEO of Infor after seven years at Oracle, which has a reputation as a (how to say it?) ‘disciplined buyer.’ The connotations of that description probably depend on which side of the table you sit on. At Oracle, the term is a compliment meaning ‘fiscally responsible’ while the view from the buyside might hold that they are ‘cheap.’

In any case, Philips’ proposed ‘take-under’ of Lawson, which got formalized on Tuesday, carries many of the hallmarks that some folks associate with deals done by his former shop: quick process, relatively low valuation and a confident ‘one-and-done’ offer. Recall that it was just six weeks ago that Infor, which is backed by Golden Gate Capital, lobbed an unsolicited offer of $11.25 per share for Lawson. And even though shares of the old-line ERP vendor traded $1 above the bid in recent weeks, Infor stuck to its original offer.

Provided the deal gets done, the acquisition marks a new era at Infor, with a new chief executive setting its course. Before Philips joined Infor last October, the consolidator had dramatically slowed its dealmaking, announcing just three deals over the previous four years. (And the recent purchases were much smaller ones at that.) Lawson stands as Infor’s largest-ever acquisition, one that will boost the company’s revenue by roughly one-third to some $3bn. Just the sort of move Oracle might have made when Philips was there.

Oracle has gone silent

Brenon Daly

Contact: Brenon Daly

While investors will be tuning in for Oracle’s Q3 report after the market’s close today, we can’t help noting that there hasn’t been much news from the consolidator recently. It has yet to announce a deal in 2011, an uncharacteristic dry spell for a company that averaged an acquisition every six weeks in each of the past two years. In Q1 2010, Oracle announced three transactions and even in the recession-wracked Q1 2009, the software giant announced a pair of deals – but nothing so far this year.

In fact, Oracle has been out of the market since it spent $1bn on Art Technology Group in early November, nearly five months ago. And it’s not just Oracle that’s currently on the M&A sidelines. Fellow big-name buyers such as Microsoft, Symantec, EMC and Nokia have all yet to open their accounts in 2011. Even serial shopper IBM was also on that list until earlier this week, when it announced its purchase of Tririga

SAP’s ‘dilutive’ deal and larger M&A implications

Brenon Daly

by Brenon Daly, China Martens

The jury’s decision to order SAP to pay $1.3bn to Oracle for stealing software and support material stands as the largest award for the theft of IP in the software industry. (As one banker deadpanned: “I think the TomorrowNow acquisition is dilutive.”) But the implications of the three-week trial extend far beyond the monetary settlement, as whopping as it is. From our perspective, the key part of the courtroom drama has been just how deeply the pair has relied on M&A to radically overhaul their businesses.

A half-decade ago, SAP figured that one of the easiest ways to hurt Oracle was to spend $10m for TomorrowNow (TN). Back in January 2005, the rationale for the TN deal made sense: buy a way of potentially siphoning off some of the rich maintenance stream that Oracle collects for supporting its ERP and CRM software. That was a key concern for SAP at the time, because it was still primarily hawking rival ERP and CRM products. The German giant had largely stayed out of the M&A market, preferring just to acquire small pieces of technology.

That changed dramatically three years ago, when SAP reached for Business Objects – its first major move beyond its core market. It stretched even further this summer with the $5.8bn purchase of Sybase. That acquisition brought SAP into several emerging markets, including mobile applications and some very promising in-memory analytics technology. The deal also represented a long-term shot at Oracle, as SAP now has a database to sell against Oracle rather than simply standing back and watching most of its ERP and CRM software run on Oracle, which has roughly half the database market.

If anything, Oracle has changed itself even more dramatically since then through acquisitions. It certainly has done a lot of them, announcing some 66 deals valued at a total of more than $30bn since SAP announced its tiny pickup of TN. Oracle has consolidated broad swaths of the software industry, including CRM, product lifecycle management, middleware, content management, as well as making a push into a handful of key vertical markets. Add to that Oracle is now in the hardware business, selling servers and storage along with other new businesses it picked up with its purchase of Sun Microsystems.

A severe case of buyer’s remorse for SAP

Brenon Daly

Contact: China Martens

Hindsight is a wonderful thing. Would SAP still have gone ahead with the $10m January 2005 purchase of fledgling third-party apps support player TomorrowNow (TN) had it had any inkling then of the financial cost more than five years later (a $1.3bn payout to Oracle and a ton of legal fees), as well as the dent to its previous sterling reputation? TN was always a loss-making business for SAP and at its height attracted less than 400 customers, a tiny proportion of the tens of thousands of Oracle apps customers.

SAP had been hoping to only have to pay out $40m over the intellectual property theft case that Oracle initiated against its bitter ERP and CRM foe and its TN business back in March 2007. Oracle alleged that TN, with SAP’s knowledge, had engaged in ‘massive theft’ of its software and related support materials through a series of illegal downloads with TN staff using customer passwords to access Oracle’s technical support websites for its JD Edwards, PeopleSoft and Siebel families of ERP and CRM apps. TN had then allegedly used the stolen materials to support its customers, offering them support at 50% less than Oracle’s rates.

More recently, SAP set aside $120m, but had in no sense been prepared that the jury would find so strongly in favor of Oracle, which had been looking for $1.7bn or more. SAP is set to appeal and ‘pursue all its options’ to reduce the award. This whole saga is far from ended – already, it’s been the stuff of Silicon Valley soap operas, with Oracle CEO Larry Ellison speaking out against new Hewlett-Packard CEO Leo Apotheker, a former CEO of SAP, and failing to serve a subpoena on him in a bizarre take on the video game Where in the World Is Carmen Sandiego?

Over the course of the case, Oracle had sought to continually expand the scope of the lawsuit, while SAP had tried to limit its focus. A few months into legal proceedings, SAP had admitted to some inappropriate downloads of Oracle material at TN, but shortly before the trial began, it decided not to contest contributory infringement, effectively contradicting earlier assertions that SAP executives didn’t have knowledge about what was going at TN.

The jury decision in favor of Oracle could well have a chilling effect on the remaining third-party support market. It’s one that never took off to the degree that its advocates had been expecting. In January, Oracle filed suit against the leading third-party support vendor, Rimini Street, which is headed by a cofounder of TomorrowNow. The suit was very similar in tone and scope to the TN one, but went into less specifics. It’s going to be interesting to see what happens now, since Rimini Street has been gearing up for a legal battle of this sort for some time.

Much has changed since SAP bought TomorrowNow, a unit it put up for sale, and, after finding no buyers, shuttered in October 2008. The move was triggered by Oracle’s multibillion-dollar purchases of ERP and CRM players PeopleSoft and Siebel. The widespread expectation was that Oracle would push those acquired customer bases to adopt its own E-Business Suite apps, but there was no large user exodus and Oracle has delivered new versions of its purchased apps. Indeed, Oracle has also tempered its big push around a new generation of apps, dubbed Fusion, with the initial release due next year.

So, customers in general are under much less pressure to migrate from the apps they’re currently using. At the same time, those same users are facing increased maintenance fees, which are a steady revenue source for both Oracle and SAP. It’s effectively at present in both companies’ interests to have no third-party apps support market. It will be interesting to see whether each of them revisits the concept to be one where they could have some revenue involvement. Over time, each player will face having to support a wider and wider variety of apps, versions and deployments, and they may find that taxing on their resources and therefore not as lucrative as in the past. Both companies are keenly aware of the gradual wearing-away impact of the SaaS apps market, where maintenance fees are substantially less or are factored into the cost of per-user, per-month subscriptions.

Oracle goes shopping in e-commerce

Brenon Daly

Contact: Brenon Daly

Oracle says it will pay $1bn in cash for Art Technology Group, the second public company the consolidator is set to erase from the Nasdaq so far this year. Terms call for Oracle to shell out $6 for each of the roughly 165 million shares outstanding for ATG. That represents a 46% premium over ATG’s closing price in the previous session and the highest price for the stock since 2001, and almost twice the level it was trading at in August. (ATG also got roughed up on the market in February, when it did a secondary offering.)

Although investors weren’t thrilled with the dilution, the secondary did essentially double the company’s cash on hand. Backing out that amount gives the proposed transaction an enterprise value of $850m. That’s 4.25 times ATG’s projected 2010 sales of $200m – a fairly rich multiple for a company that was growing at 11-12%. We suspect that the premium came because Oracle had to top another bidder. In our minds, the most likely other suitor would be Autonomy Corp. Morgan Stanley advised ATG on the deal, which is expected to close early next year.

Oracle parlays new interest in chips into small stake in Mellanox

Brenon Daly

Contact: John Abbott

When Oracle started hinting recently about its growing interest in chip vendors, Mellanox Technologies was at the top of our list of potential acquisition candidates. It turns out that Oracle is indeed interested in Mellanox, but only in a chunk of it. Oracle said earlier this week that it bought 10% of Mellanox’s ordinary shares on the open market.

Oracle didn’t reveal the price it paid for Mellanox or when it was in the market. But on a back-of-the-envelope basis, the stake probably represents about a $70m bet on Mellanox. (The company has about 35 million shares outstanding, and the price has been bumping around $20 each for much of the past month.) Other significant investors in Mellanox include Fidelity Management & Research, with an 11.7% stake, Alger with 7.5%, and the company’s CEO, Eyal Waldman, who owns 5.3% of the company.

As it picked up the chunk of equity, Oracle was quick to add that the purchase is for investment purposes only, and is not the start of a larger play for Mellanox, friendly or otherwise. Its stated motive is to solidify common interest in the future of InfiniBand.

Mellanox is one of only two suppliers making silicon for InfiniBand switches and adapters, the other being QLogic. It formed a close relationship with Sun Microsystems eight years ago, and more recently, its chips have been used within Oracle’s Exadata and Exalogic data-warehousing and storage appliances. In return for Oracle’s dollars, Mellanox will make Oracle Solaris one of its core supported OS platforms. But it will continue to work with Oracle’s rivals, including IBM, Hewlett-Packard and Dell.

As far as datacenter communications fabrics go, InfiniBand has maintained its technical lead over Ethernet and it looks like it will be doing so for a while to come. Even so, Mellanox has also launched a parallel set of 10Gb Ethernet products in the past few years in order to maintain its growth. And it’s also been looking to diversify into the consumer space, if reports that it recently tried (apparently unsuccessfully) to acquire fellow Israeli company CopperGate Communications for $200m are true. Privately held CopperGate develops chips for home entertainment devices and digital home broadband networking.

Oracle steps back into M&A market

Brenon Daly

Contact: Brenon Daly

After taking the summer off from M&A, Oracle on Monday announced the acquisition of authentication management startup Passlogix. The purchase is the first one by the normally acquisitive Oracle since it announced a pair of asset pickups in late May. Sitting out the summer slowed Oracle’s pace from steady deal flow earlier this year as well as other years. The Passlogix buy is Oracle’s eighth deal in 2010.

The first seven purchases, however, came in the first five months of 2010. That was ahead of the M&A pace Oracle held from 2005-2008, when it inked an average of a deal a month in each of the years. Oracle announced just eight acquisitions in recession-wracked 2009, when overall M&A activity was muted.

As we noted in our report on Q3 M&A, Oracle was one of the highly visible companies that didn’t announce a single transaction in the July-September period. Similarly, both Microsoft and Symantec sat out the quarter, too. But their inactivity was more than made up for by fellow tech giants Hewlett-Packard and IBM. That duo went on an M&A safari in the third quarter, with an eye toward bagging big game. In the just-completed July-September period, IBM and HP combined to announce 11 deals with a total bill of more than $7.3bn.

Oracle: two deals, but more than a year apart

Brenon Daly

Contact: Brenon Daly

Exactly a year ago today, Oracle announced its unexpected $7.4bn acquisition of Sun Microsystems. If it doesn’t seem like it was that long ago, that’s because it really wasn’t. Final approval for the deal dragged on for nine full months, largely because of scrutiny by the European Commission of Oracle owning Sun’s open source database, MySQL. Eventually, Brussels agreed with our initial assessment that MySQL and Oracle rarely competed (MySQL was focused mostly on the low end of the market and on Web applications), so they cleared the transaction.

The purchase of Sun is a singular deal for Oracle. (It brings the company into the hardware game for the first time, for instance.) And it stands out even more when compared with Oracle’s pickup on Friday of Phase Forward, which is the only public company that Oracle has snagged since Sun.

For starters, the price of Phase Forward is about one-tenth the price of Sun. But more significantly, Sun was a broad, horizontal acquisition, while Phase Forward is a vertical market play. The target serves life sciences companies offering a subscription-based way to keep track of clinical trials. (It has more than 335 customers.) And perhaps most notably, parts of Sun’s technology (Sparc and Solaris, among others) will be integrated into many offerings from Oracle, which is following the strategy of other systems vendors. On the other hand, Phase Forward will be slotted into the narrowly defined Oracle Health Sciences unit.