martinwolf
Transaction Analysis
Oracle to Acquire NetSuite
Financial Information
- Transaction Size $9.3 billion
- EV/LTM Revenue 11.0x
Transaction Facts
- Enterprise software giant Oracle announced today that it agreed to buy cloud ERP provider NetSuite for $109 per share in cash, 19 percent above NetSuite's closing price Wednesday.
- Following the transaction, NetSuite shares closed the day up 18 percent while Oracle shares closed almost flat.
- The deal, Oracle's sixth announced acquisition this year, is its largest since acquiring HCM provider PeopleSoft for $10.3 billion in 2004.
- As Oracle Chairman Larry Ellison holds significant positions on both sides of the transaction (he holds 27 percent of Oracle's common shares and almost 40 percent of NetSuite's), the transaction was led by a special committee of independent Oracle directors. The transaction will close only if a majority of other NetSuite shareholders approve.
Oracle Looks to be Salesforce of Cloud ERP
- Oracle as a Cloud Leader: Ellison has publicly feuded with Salesforce CEO Marc Benioff, declaring in June that he expects Oracle to become the first $10 billion cloud-computing company. This would represent a significant increase - the company reported $2.2 billion in SaaS and PaaS revenue last year. But with the rapid pace of cloud adoption, it is expected that many existing on-premises JD Edwards, PeopleSoft and other Oracle contracts will be converted to cloud applications - creating significant opportunity for systems integrators in the form of implementation revenue.
 A History of Cloud M&A: Oracle has made multiple cloud acquisitions to build out its platforms and offerings, including vertical buys like utilities software provider Opower and construction management software provider Textura. Its acquisition of NetSuite is a horizontal play, bringing it a comprehensive suite of ERP offerings and giving systems integrators larger markets to address.- A Double-Edged Sword: Moving to the cloud has historically meant two competing incentives - while customers are locked in to recurring revenue contracts, the upfront revenue is significantly less. As a result, Oracle has until recently pursued an ambivalent cloud strategy, preserving lucrative licensing revenue while developing new cloud offerings. However, with more customers seeking cloud options, Oracle recently announced a major internal transformation and reprioritization aimed at growing cloud revenues. This is good news for systems integrators - industry estimates place each dollar of SaaS subscription revenue as having the potential to generate $10 in systems integrator revenue.
- Why Today: Many observers expected this deal, given the companies' tight relationship and the minimal overlap (historically, NetSuite has targeted smaller implementations). The fact that the transaction is finally going through today-at a higher price than it would have had it happened earlier-indicates that Oracle believes the market is now receptive to a cloud-based ERP solution.
- Proven Path: Oracle services providers should expect to benefit from the acquisition as they have with Oracle's prior large acquisitions, notably Siebel, PeopleSoft and Sun.
For more information about this transaction,
click here to read the press release.
martinwolf was not the advisor in this transaction.
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With offices in the San Francisco Bay Area, martinwolf is a leading M&A Advisory focused on middle market companies in the IT Services, IT Supply Chain, IT-Enabled Business Process Outsourcing and Software as a Service (SaaS) space. Since 1997, our team has completed more than 140 transactions in nineteen countries and sold seven divisions of Fortune 500 companies. martinwolf is a member of FINRA and SIPC. For more information, visit www.martinwolf.com. To learn more about martinwolf, contact Matthew Putzulu at [email protected]. © martinwolf 2016 |
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"I have had all of the disadvantages
required for success"
Larry Ellison
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