Tag: ORCL

Oracle-Sun: a system on the cheap

Brenon Daly

Contact: Brenon Daly

Oracle’s big step into the hardware market comes at a relatively small price. In buying Sun Microsystems, Oracle is paying just one-tenth the valuation that it paid in its other multibillion-dollar acquisitions. The difference: the other purchases added software vendors with increasing sales and solid profitability, while Sun provides neither of those. Sun revenue is likely to slip about 10% in the current fiscal year, which ends in June, and the company has lost money in three of the past four quarters.

Still, the valuation drop-off is striking. Sun had generated some $13.3bn in trailing 12-month (TTM) revenue. Based on an offer that gives Sun an enterprise value (EV) of $5.6bn, Oracle is paying just 0.42x Sun’s TTM sales. In the four other acquisitions worth more than $1bn that Oracle has inked, the company has paid between 3.7x EV/TTM (Hyperion Solutions) and 5.2x EV/TTM sales (BEA Systems.)

Oracle’s multibillion-dollar deals

Date Target Equity value EV/TTM sales
December 2004 PeopleSoft $10.46bn 3.9x
January 2008 BEA Systems $8.5bn 5.2x
April 2009 Sun Microsystems $7.4bn 0.46x
September 2005 Siebel Systems $5.85bn 4x
March 2007 Hyperion Solutions $3.3bn 3.7x

Source: The 451 M&A KnowledgeBase

Preemptive consolidation in financial IT?

-Contact Thomas Rasmussen

With reports indicating that IBM has pulled its multibillion-dollar offer for Sun Microsystems, the second-largest deal of the year so far is the $2.9bn all-equity purchase of Metavante by Fidelity National Information Services (FIS) announced in early April. (Yesterday, Express Scripts announced that it will fork over $4.7bn for WellPoint’s NextRx subsidiaries.) In fact, we recently noted that the first quarter closed without a single transaction worth more than $1bn. It was the first time a quarter passed without a 10-digit deal since we began keeping records in January 2002. This transaction consolidates two active acquirers. Metavante and FIS have together inked more than 30 purchases over the past five years: FIS has completed 18 deals worth north of $7bn (excluding this pickup), while Metavante has closed 15 to the tune of about $1.4bn.

The combined FIS and Metavante will have revenue of $5.1bn, about $300m in cash after the transaction closes, and free cash flow of about $700m. However, though the management of the new company outlined its healthy cash flow as means for making further acquisitions, we don’t expect them to step immediately back into the market as the giants work on integrating the blockbuster deal. (We would note that both FIS and Metavante were out of the market in 2008.) Instead, we expect near-term consolidation to likely come from the firm’s two remaining large competitors Fiserv and First Data Corp, which Kohlberg Kravis Roberts took private for $30bn two years ago. Additionally, we could see Oracle and IBM using their vast cash reserves to buy their way into this sector. In fact, FIS and Metavante said in their conference call discussing their planned transaction that one of the reasons they were getting together was to stave off the expected competition from Oracle and Big Blue. So who might be of interest to any of these buyers? We suspect smaller players such as Jack Henry & Associates or even payments competitors TeleCommunication Systems and S1 Corp could well become targets.

Financial IT M&A by the now three largest buyers since 2002

Acquirer Number of deals Total deal value
FIS-Metavante 42 $12.7bn
First Data Corp 20 $9bn
Fiserv 28 $5.3bn

Source: The 451 M&A KnowledgeBase

Back-of-the-envelope thinking on Red Hat-Oracle

Brenon Daly

Contact: Brenon Daly

If Oracle was seriously planning a bid for Red Hat (and we have our doubts about such a pairing), then Larry Ellison had better be prepared to reach deeper into his pocket. Following Red Hat’s solid fiscal fourth-quarter report, shares of the Linux giant jumped 17% to $17.60 on Thursday. That added about a half-billion dollars to Red Hat’s price tag, with the company now sporting a fully diluted equity value of some $3.5bn.

Looking back at the nine US public companies that Oracle has acquired this decade, we would note that Oracle has paid an average premium of 14% above the previous day’s closing price at the target company. (Note: We excluded the two-year-long saga around PeopleSoft.) If we apply that premium, which we acknowledge is crudely calculated, to Red Hat, the company’s equity value swells to $4bn, or about $21 per share. That’s essentially where Red Hat shares changed hands in August, before Wall Street imploded.

On the other side of the table, Red Hat recently cleaned up its balance sheet, which certainly makes it a more palatable target. (Again, we don’t think the company is in play, much less took the steps to catch Oracle’s eye. More so, that it was just good fiscal practice.) Specifically, Red Hat paid off all of its debt and finished its fiscal year, which ended last month, with $663m in cash and short-term investments. That would be a nice ‘rebate’ for any potential buyer, in the unlikely event that Ellison or anyone else reaches for Red Hat.

Oracle M&A: real and rumored

Brenon Daly

Contact: Brenon Daly

Since 2005, Oracle has notched an average of about an acquisition per month each year. Generally speaking, the deals can be sorted into three main buckets: broad horizontal technology purchases, small technology tuck-ins and equally small purchases of companies selling applications for specific industries. Fittingly for a busy buyer, Oracle has one of each of those types of transactions either done or ready to get done. At least, those are the rumors.

First, let’s start with an acquisition that Oracle has announced. On Monday, the vendor said it will pay an undisclosed amount for Relsys, a 22-year-old company that makes safety and risk management software for the pharmaceutical industry. Oracle’s purchase of the Irvine, California-based company comes after it made similar buys for software vendors that serve specific industries, including telecommunications, insurance, retail, utilities and others.

Turning to the speculative transactions, we heard a month ago from several sources that Oracle was interested in picking up Virtual Iron Software. As an example of a technology acquisition, Virtual Iron would add Xen management capabilities to Oracle, which already has a Xen-based hypervisor. And on a larger scale, the market has been buzzing with talk this week about whether Oracle might be mulling a bid for Red Hat. (The open source giant, which reports earnings after today’s close, has seen its shares double since late November.)

While Oracle has reached for open source vendors in the past (Sleepycat Software and Innobase) and still lacks an OS offering in its portfolio, we have doubts that it would make a play for Red Hat. The main reason: Larry Ellison has maintained that his company does not need to have a Linux distribution of its own since it provides support for Red Hat via its Unbreakable Linux program, which was launched in late 2006.

Select platform acquisitions by Oracle

Date Target Price Market
January 2008 BEA Systems $8.5bn Middleware
May 2007 Agile Software $495m Product lifecycle management
March 2007 Hyperion Solutions $3.3bn Business intelligence
November 2006 Stellent $440m Content management
September 2005 Siebel Systems $5.85bn CRM
December 2004 PeopleSoft $10.46bn ERP

Source: The 451 M&A KnowledgeBase

Oracle’s stimulus package

Brenon Daly

Contact: Brenon Daly

One way to read Oracle’s novel announcement on Wednesday that it will start paying a dividend is that after years of handing out money to shareholders of other companies in the form of acquisitions, it will dole out some to its own investors. Word that the software giant will pay a dividend for the first time comes after a quarter in which Oracle acquired just one company, mValent. It was the lowest quarterly total for the company in recent memory, and compares with the shopping spree in the same quarter last year that saw it take home BEA Systems for $8.5bn, among other deals.

Although terms for Oracle’s most-recent acquisition weren’t released, we understand that it paid less than $10m for mValent, a change and configuration management startup. Viewed in light of the announced dividend of a nickel per share, even assuming that Oracle paid $10m for mValent, the purchase price works out to just 4% of the cash that the company is set to return to shareholders next month. (With five billion shares outstanding, Oracle’s dividend bill will be $250m per quarter, or $1bn for the full year.)

Even though time and money can only be spent once (as the saying goes), merely committing to paying a dividend doesn’t necessarily take a company out of the M&A market. Look at Microsoft, which has been a dividend-paying company since the beginning of 2003. It has inked four of its five largest deals even as it handed back billions of dollars to its own shareholders. And that corporate largess has hardly imperiled the Redmond, Washington-based behemoth. It finished last year with more than $20bn in cash and short-term investments on its balance sheet.

Oracle’s M&A, by quarter

Period Deal volume Disclosed and estimated deal value
Fiscal Q3 (December-February) 2009 1 Estimated less than $10m
Fiscal Q2 (September-November) 2008 5 $455m
Fiscal Q1 (June-August) 2008 2 Not disclosed
Fiscal Q4 (March-May) 2008 2 $100m
Fiscal Q3 (December-February) 2008 4 $8.5bn
Note: Oracle’s fiscal year ends in May

Source: The 451 M&A KnowledgeBase

Real deal for Virtual Iron?

Brenon Daly

Contact: Brenon Daly, Rachel Chalmers

Several sources, both from industry and financial circles, have indicated that server virtualization startup Virtual Iron Software is nearing a deal to sell to a strategic buyer. The name at the top of the list? Oracle, which has a Xen-based hypervisor (OVM), but lacks management tools. Virtual Iron would bring Xen management.

Another name that has surfaced is Novell. A year ago, the company handed over $205m for PlateSpin, which was its largest virtualization acquisition and one that valued eight-year-old PlateSpin at roughly 10 times its revenue. Virtual Iron would fit well with Novell’s virtualization efforts as well as with its open source leanings (Virtual Iron is based on Xen).

Sometimes viewed as a ‘down-market VMware,’ Virtual Iron sells primarily to SMEs through its channel. The Lowell, Massachusetts-based company has raised some $65m in funding since its founding in 2003. Backers include Highland Capital Partners, Matrix Partners, Goldman Sachs Group and strategic investors Intel Capital and SAP Ventures.

We understand that Virtual Iron had somewhat ‘frothy’ expectations after Citrix paid a half-billion dollars for XenSource in mid-2007. However, sources say Virtual Iron won’t get anywhere near the valuation of XenSource. In fact, most folks have doubts that the company will even sell for the amount of VC dollars that went into it.

Informatica: Wheeling and dealing in the Windy City

Brenon Daly

Contact: Brenon Daly

It appears that the Second City is a first stop for M&A at Informatica. The data integration company picked up Chicago-based startup Applimation for $40m on Thursday. And there’s continuing speculation that Redwood City, California-based Informatica will reach for the Windy City’s Initiate Systems for a master data management platform. So, in addition to being (in the words of Carl Sandburg) the ‘Hog Butcher for the World/ Tool Maker, Stacker of Wheat/[and]… City of the Big Shoulders,’ Chicago is emerging as a bit of a data dealer.

Of course, there’s another Chicago connection to a possible Informatica deal, one that has the company on the sell side. We have speculated in the past that Oracle might make a play for Informatica to shore up its data quality and data integration business. How does the city figure into that rumored pairing?

As has often been recounted, Oracle CEO Larry Ellison was raised by his adoptive parents on the hardscrabble South Side and very briefly attended the University of Chicago. Shortly after dropping out and founding the company that would eventually go on to become Oracle, one of Ellison’s first hires at the fledgling firm was a young programmer, who had studied at the University of Illinois, for the Chicago office. The person hired was Sohaib Abbasi, who spent 20 years at the database giant before leaving to head up Informatica.

Inconsistent currencies

Brenon Daly

Throughout much of the year, the US dollar looked like lightweight paper. A buck basically bought you a loonie (as our northern neighbors call their dollar), and foreign exchange traders were heard shouting jokes about ‘the American peso.’ We noted the weak US dollar as one of the key reasons that total M&A spending by US acquirers dropped by about two-thirds from mid-2007 to mid-2008, while European shopping jumped by one-third (see report).

In the wake of the global financial crisis, however, the dollar has strengthened. To get a sense of that, consider the relative value of the US dollar when two Silicon Valley-based multinational tech giants went on shopping trips to Australia this year. Back when Hewlett-Packard made its play for records management vendor Tower Software in late March, the US dollar bought about A$1.10. A few days ago, when Oracle reached for Haley Limited, $1 bought A$1.60. That’s a lot more buying power for the once-humbled US dollar.

Marked-down leftovers

Brenon Daly

When Oracle snapped up Primavera Systems last week, we had to spare a thought for the surviving project and portfolio management (PPM) vendors. That thought almost became the start of a eulogy as we saw Primavera’s publicly traded rival get trounced on the Nasdaq and its direct competitor still out on the market seeking a buyer.

Let’s start with the biggest of the big, Deltek Systems. Since the company, which is majority owned by buyout firm New Mountain Capital, went public a year ago, its shares have lost three-quarters of their value. That has reduced Deltek’s market capitalization to just $190m. Deltek also carries about that same amount of debt, along with a stash of roughly $33m in cash. Altogether, Deltek’s enterprise value is around $350m. That for a company that will do about $300m in revenue this year, including approximately $100m in maintenance revenue, while running at a mid-teens operating margin.

Next is Planview, another privately held PPM vendor. The Austin, Texas-based company is roughly the same size as Primavera, running at about $175m. More than a few sources have indicated that Planview has been for sale for some time, but for whatever reason, it hasn’t found a taker. Not that we imagine it would be prohibitively expensive at this point. If Plainview went for the same valuation as Primavera, it would fetch $350m; pegging the purchase price to Deltek’s current multiple would put it closer to $200m. That’s mere pocket change for IBM, which we hear may have been interested in Primavera, a partner company.

SAP’s next big deal?

Brenon Daly1 Comment

Earlier this week, SAP marked the first anniversary of its largest deal ever, the $6.8bn purchase of Business Objects. Now, some folks in the market are already lining up the next multibillion-dollar acquisition for the German giant. JMP Securities analyst Pat Walravens has floated the idea that SAP may be planning to buy data-warehouse titan Teradata. (Incidentally, Teradata celebrated its own first anniversary this week, having started trading on the NYSE on October 9, 2007.)

The pairing would make a fair amount of sense. We noted a year ago that SAP and Teradata have a deep partnership, sharing more than 200 customers. And SAP clearly needs more technological heft if it wants to sell a stand-alone data warehouse. (It currently offers its data warehouse as part of the NetWeaver BI integration stack.) But we have a hard time seeing SAP reaching for Teradata, which sports a $2.9bn market capitalization.

Typically, SAP doesn’t make consolidation plays like Teradata. (That’s the role of Oracle, which is likely to be less interested in Teradata since recently rolling out its high-end data-warehouse offering, HP Oracle Database Machine, which is its answer to the massively parallel-based warehouses offered by Teradata and others.) Instead, SAP generally favors small technology purchases, and one startup that we think would fit SAP pretty well is Greenplum. SAP thought well enough of Greenplum to put some money into its series C earlier this year.

However, SAP might find itself in competition for Greenplum with the startup’s other strategic investor, Sun. Greenplum has a data warehouse appliance for Sun servers. There’s also the alumni connection: Greenplum CEO Bill Cook worked for 19 years at Sun before running the startup. That said, Greenplum is not the only data-warehouse vendor Sun has invested in, having taken a minority investment in Infobright’s series C last month.