Tag: ORCL

Silver Creek comes out golden in sale

Brenon Daly

Contact: Brenon Daly

Although terms weren’t disclosed in Oracle’s reach for Silver Creek Systems earlier this week, we suspect the startup can claim something that not one of the nine companies that Oracle gobbled up in 2009 can say: it garnered an above-market valuation in the deal. The trade sale also undoubtedly generated a decent return for Silver Creek’s backers, which hasn’t been the case in many recent sales of VC-backed companies.

A pretty lean operation, Silver Creek has raised some $14m since its restart as a data-quality vendor back in 2002 and hasn’t needed to raise money since 2005. We believe Oracle may have ended up paying twice the amount that Silver Creek raised, since we understand there was at least one other bidder. The acquisition essentially formalizes an OEM relationship that the two companies have had since April, as my colleague Krishna Roy noted in her report on the transaction.

Whatever price Silver Creek ended up getting, it’s a notable uptick from last summer, when we were writing about how a startup in a similar market had pulled off an improbable deal that – if everything falls into place and full earnouts are earned – might just make its backers whole again. (See our earlier item on Exeros’ gamble and ultimate sale to IBM.) Also keep in mind that Big Blue only picked up some of the assets of the data discovery startup, not the whole company and its employees, as is the case with Oracle’s reach for Silver Creek. All in all, Oracle’s purchase of Silver Creek is yet another sign that the tech M&A market continues to rebound, even if it hasn’t yet fully recovered.

And the Golden Tombstone goes to …

Brenon Daly

Contact: Brenon Daly

We survey corporate development executives every year to get a sense of their shopping plans for the next 12 months. We’ll have a full report on the survey when we return from our holiday break in early January, but the headline finding is that two-thirds of the respondents expect the pace of M&A at their firms to pick up in 2010, compared to just 5% who see the rate tailing off. We would note that bullishness is echoed by technology investment bankers, who we also recently surveyed. (See our full report on the tech bankers’ survey.)

In addition to getting their outlook for the coming year, we also ask corporate development executives to pick a single deal that stood out to them as the most significant transaction of the year. The 2009 winner? Oracle’s still-pending $7.4bn acquisition of Sun Microsystems. Larry Ellison’s big gamble on hardware received twice as many votes as the second-place transaction, Hewlett-Packard’s reach for 3Com last month. (HP won the award last year for its purchase of services giant EDS.) Third place was claimed by EMC’s aggressive grab of Data Domain.

From our perspective, it’s fitting that Oracle’s purchase gets the coveted Golden Tombstone for 2009. (As an aside, it’s unintentionally accurate to be referring to ‘tombstones’ in connection with deals this year, if just because the M&A market was as quiet as a cemetery.) After all, 2009 has been characterized by transactions that are cheaper but take longer to close than in years past. Oracle, which announced the purchase of Sun in April but still hasn’t gotten full approval for it, is paying just 0.6x trailing sales for the faded tech giant. It was that kind of year for M&A, and one we’ll gladly put behind us. Here’s to a healthy and happy 2010 when we return from a much-needed break.

Golden Tombstone winners

Year Transaction
2009 Oracle’s $7.4bn purchase of Sun Microsystems
2008 HP’s $13.9bn acquisition of EDS
2007 Citrix’s $500m XenSource buy

Source: The 451 Corporate Development Outlook Survey

Informatica: Just dating or something more?

Brenon Daly

Contact: Brenon Daly, Krishna Roy

Is it just dating, or are they looking to get married? That was a question that Wall Street was kicking around last week after Hewlett-Packard and Informatica announced a deeper relationship. The new accord sees HP licensing a number of Informatica’s offerings so that it can provide its customers with data management products. HP is also supplying these same wares from Informatica as part of its existing consulting services for business intelligence (BI) and related arenas and pushing these combined offerings through its direct sales force. (My colleague Krishna Roy has a full report on the tie-up.)

The announcement, which came out last Tuesday, didn’t initially generate much speculation about the relationship between the two longtime partners. However, by Friday, Wall Street was reading much more into the joint agreement. Shares of Informatica rallied almost 7% on Friday, with volume more than three times heavier than average. (The rally continued a strong run by Informatica, which has seen its shares gain some 56% so far this year, vastly outpacing the 32% advance for the Nasdaq in 2009.)

However, both HP and Informatica have taken great pains to position themselves as independent software providers. Indeed, even as HP announced that it would be doing more with its relationship with Informatica, it also clearly said that it will continue to work with other data management and BI vendors. And on the other side, we noted that ‘neutrality’ may have come up in rumored talks last year between Informatica and Oracle. In any case, the independence and openness stand in contrast to the moves in this market by IBM – the rival that’s the primary target of the deeper HP-Informatica partnership. Big Blue spent $1.14bn in cash in March 2005 for Ascential Software, an acquisition that most observers would say hasn’t delivered.

Red Hat rumors: a reheat or something more?

Brenon Daly

Contact: Brenon Daly

When VMware reached for SpringSource earlier this month, the $420m pairing represented the largest open source transaction in a year and a half. Now, the market is buzzing with rumors about another blockbuster open source deal, one that would be more than 10 times the size of VMware-SpringSource. Several sources have indicated that interest in Red Hat has been heating up lately, with Oracle and IBM popping up again as suitors.

The rumors, of course, are nothing new. We have been speculating about a possible pairing between Red Hat and IBM or Oracle for almost three years. (When Oracle launched its own support of Linux back in 2006, we wondered if it wasn’t a ‘beat ’em down and take ’em out’ strategy from the coldhearted Larry Ellison.) And when the rumblings surfaced again earlier this year, we did some back-of-the-envelope thinking about a bid from Oracle. Honestly, though, we think Big Blue is a more likely buyer for Red Hat.

While the speculation stays largely the same, however, there is one change: the price of Red Hat keeps going up. Since we noted the latest reports of Oracle’s interest in late March, shares of Red Hat have tacked on about one-quarter in value. The company currently sports a market capitalization of $4.2bn; however, its cash holdings lower the effective purchase price to about $3.5bn. Red Hat is just now wrapping its fiscal second quarter, and has already said it expects revenue to be about $179m for the period. The vendor will likely report results in about a month.

Where’s the hurry in Oracle’s reach for Sun?

Brenon Daly

Contact: Brenon Daly

Having gotten the all clear on this side of the Atlantic, Oracle is now waiting for the EU to sign off on its pending purchase of Sun Microsystems. And the company will have to wait a bit longer. The European Commission has a deadline of September 3 to determine if the deal would violate antitrust measures. If the body decides that it does, a subsequent probe could potentially drag on into 2010.

Granted, there’s a lot at stake in Larry Ellison’s plan to use the acquisition of Sun to turn Oracle into a systems vendor, as opposed to a company that just sells software. (Provided the transaction goes through, Oracle will be in a position to hawk Solaris and Linux servers, all running its own database, middleware and application software on the boxes.) And, as the largest tech buy since Hewlett-Packard purchased EDS in May 2008, Oracle’s $7.4bn reach for Sun is clearly not nickel-and-dime M&A.

But the pace of the review by regulators is absolutely glacial. Consider this fact: It took Oracle just two months to fully negotiate its purchase of Sun, according to proxy material. (Sun chairman Scott McNealy spoke with Ellison about a possible deal in late February; the companies announced the transaction on April 20.) More than twice that amount of time has elapsed since Oracle announced the deal – and regulators in Europe are still mulling it over.

Halfway through a rough year

Brenon Daly

Contact: Brenon Daly

Since we’re at the midpoint of 2009, we thought we’d tally what we’ve already seen in M&A this year and project what we’re likely to see for the remainder of the year. First, the look back at the first two quarters of 2009: The $58bn in announced and estimated deal spending so far this year is the lowest level of January–June tech shopping in a half-decade. More dramatically, spending on deals in the first two quarters of 2009 is only about one-quarter the amount spent during the comparable period in any of the past three years. June was a particularly slow month, after there were a flurry of deals in April and May.

As to what the rest of 2009 will look like, we suspect it will closely resemble the second half of last year. For the record, the announced spending from July–December 2008 hit just $72bn. Obviously, it’s difficult to predict a lumpy business like M&A. But the way the economy is dragging along right now, we’re inclined to think that big buyers will look to take small bites for the rest of the year. That’s what they did in the second half of 2008. Indeed, it wasn’t that the traditionally busiest buyers in tech took themselves out of the market altogether. Rather, they just scaled back their purchases, despite holding tens of billions of dollars in cash. For instance, the largest transactions inked in the back half of last year by tech giants such as McAfee, Oracle, IBM, Google and Microsoft – among many other companies – were all less than a half-billion dollars.

Q1-Q2 tech spending

Year Deal volume Deal value
2009 1,400 $58bn
2008 1,557 $228bn
2007 2,005 $294bn
2006 2,019 $268bn
2005 1,388 $162bn
2004 999 $111bn

Source: The 451 M&A KnowledgeBase

Hey Larry, wanna buy a bridge?

Brenon Daly

Contact: Brenon Daly, Krishna Roy

Although Oracle announced the purchase of Conformia Software on Wednesday, the market is currently buzzing with speculation that the tech giant has closed – but not yet announced – a much larger transaction. Several sources have indicated that Oracle has acquired GoldenGate Software. The two companies have had a deep relationship for some time and while a deal has been kicked around in the past, talks stalled because GoldenGate always priced itself higher than Oracle was willing to spend. We haven’t heard what Oracle ended up paying for GoldenGate, which we understand was generating slightly more than $100m in trailing sales.

In many ways, this rumored deal echoes IBM’s purchase of DataMirror two years ago. In that transaction, Big Blue paid $161m, or 3.3x DataMirror’s trailing 12-month (TTM) revenue. Of course, 2007 was a high-water mark for recent valuations, both on the Nasdaq and among VC-backed companies. (GoldenGate has received a reported $33m from Summit Partners.) According to our analysis of data from the 451 M&A KnowledgeBase, VC-backed companies sold for a median valuation of 6.2x TTM in 2007, compared to just 2.8x TTM sales so far this year.

If Oracle is indeed picking up GoldenGate, the acquisition should enable the database giant to compete more effectively with IBM’s Information Server and other data management offerings from Big Blue. GoldenGate’s technology would give Oracle the opportunity to extend its data migration, high-availability and real-time integration capabilities to non-Oracle environments. GoldenGate already provides data migration capabilities for Siebel applications and real-time integration for Oracle’s data warehouse, for example, so there’s already technical integration in place.

Quick to offer, slow to vote

Brenon Daly

Contact: Brenon Daly

Even with the recent flurry of deal announcements, the pace of actually getting those proposed transactions in front of shareholders hasn’t necessarily followed suit. On Monday, a pair of buyers of public companies said they wouldn’t be holding votes on the proposed acquisitions, which were both announced in mid-April, until mid-July. To be sure, the anticipated three-month gap between announcing the transactions and shareholders voting on them isn’t alarmingly long. But it does continue the rather drawn-out dealmaking process that we’ve seen since the credit crisis tore apart Wall Street.

In the larger of the two announcements, Oracle said Sun Microsystems shareholders will have the opportunity to sound off on the planned $7.4bn deal on July 16. That is almost two weeks longer than it took to close its slightly larger purchase of BEA Systems last year. And if, as expected, Sun shareholders agree to the pending acquisition and Oracle closes it immediately, the time from announcement to closing would be roughly twice as long as the time for its multibillion-dollar purchase of Hyperion Solutions as well as its smaller acquisition of Stellent.

Meanwhile, Thoma Bravo, which plans to pick up Entrust, originally intended to put its $114m offer before shareholders on Monday. Instead, they will vote on the deal July 10. The delay comes despite not a single superior bid surfacing for the security company during its ‘go-shop’ period. The target said it shopped itself to 35 other potential suitors from mid-April to mid-May, but received only three non-binding offers. Entrust’s board didn’t judge any of them ‘superior’ to Thoma Bravo’s original offer. Shareholders will have their say on that in a month.

Sun’s Sparc still has future, Ellison insists

Brenon Daly

Contact: John Abbott

With Oracle likely just two months or so away from closing its $7.4bn acquisition of Sun Microsystems, speculation is now picking up about what parts of Sun’s technology portfolio will be dropped. (And make no mistake, cost-cutting is a major driver of this deal. Oracle has pledged to wring at least $1.5bn of operating profit from Sun in the first year that it owns the company.) But Oracle is currently working hard to counter suggestions that it won’t take on Sun’s core hardware business, and in particular, that it will give up on Sparc processor development. That’s not the case, CEO Larry Ellison insists. In fact, Oracle will increase investment in Sparc, Ellison says.

His argument is that, by designing hardware and software together to work as a system, it’s possible to avoid the low-margin trap of the commodity server business. Sparc is a key part of that, says Ellison. He adds that, as IBM has found, some system features are best done in silicon. That said, Oracle doesn’t plan to work on a Sparc-Solaris version of its Exadata database machine. Instead, it will keep the arrangements it has with Hewlett-Packard in place over its current systems activities for the Exadata database machine, which Ellison claims has been the most successful product introduction in Oracle’s 30-year history.

However, it’s still hard to believe that Oracle will make a long-term commitment to the continuing development of a proprietary RISC chip architecture. IBM’s Power and Intel’s Itanium are now the only other significant architectures: Power has been bolstered by some lucrative and high-volume gaming console contracts, while Itanium sales, driven almost exclusively by HP, have done little more than replace shipments of older HP architectures (such as Alpha, PA-RISC and NonStop) without any significant market growth. So how does Ellison see his way out of this? He plans to work in partnership with Fujitsu to add features to Sparc aimed at improving Oracle’s database performance. But reading between the lines, it’s possible that this could lead to handing over most or all of the ongoing development work for Sparc chips to Fujitsu. Provided, of course, the Japanese tech giant wants to take that on.

‘Animal spirits’ stir M&A market

Brenon Daly

Contact: Brenon Daly

The M&A market is back. OK, not really. But looking at this week’s deal flow, one could forget that spending on acquisitions plummeted 85% in the first three months of the year. (We recently noted that Q1 2009 was the first time since we began tracking tech M&A in January 2002 that we saw a quarter without a deal worth more than $1bn.) Literally as soon as the calendar flipped to April, we saw one 10-digit transaction, and that’s been followed by three others.

Of course, most people point to Oracle’s pending purchase of Sun Microsystems as evidence that ‘animal spirits’ (as Keynes would say) are starting to stir again. That purchase stands as the largest IT transaction since Hewlett-Packard’s $13.9bn acquisition of EDS last May. (Yesterday we reported how Oracle’s planned pickup has reshuffled our league table, at least in the early going of 2009.) Another way to view the mammoth size of the deal is to consider that the $260m break-up fee in Oracle-Sun is larger than all but 15 of the announced deal values so far this year. (As an aside, we would note that the $260m represents 3.5% of the deal value, which is a point above where many other transactions come in.)

However, there were other signs of life in the sector this week beyond that big acquisition. Well-known buyer Symantec returned to the market for the first time in a half-year, paying what we understand was $18m for Mi5 Networks. Also, private equity players notched a pair of deals. And we even saw an unsolicited bid for a public company. We would note that it wasn’t a run at some micro-cap company that no one has ever heard of, much less owns shares in. Emulex is a 30-year-old vendor that earns money and typically trades about three million shares each day. Broadcom offered $9.25 for each share of Emulex, for a total equity value of $764m. However, Emulex stock has been trading above $10 since the offer.