by Ken Stewart | 8/8/16
On July 28, Oracle announced a definitive agreement to purchase cloud ERP software firm Netsuite for a stratospheric $9.3 billion. This will be the second largest acquisition in Oracle’s history next to its hostile takeover of PeopleSoft in 2004. Oracle is buying the firm for a premium of $109 per share — more than 12 times its 2015 revenue of $741 million — underscoring how valuable a strong cloud footprint has become to future growth.
Despite publicly disparaging cloud-based solutions many years ago, Larry Ellison’s Oracle has been decidedly cloud-hungry of late. Earlier this year alone, Oracle purchased two SaaS-based solutions for a combined ticket price of nearly $1.2 billion.
With a strong presence in the midmarket, Netsuite’s acquisition provides an interesting angle for Oracle to add the capabilities of yet another cloud-based software provider and access to a rapidly growing market of buyers questioning their continued investment in on-premise infrastructure.
Where leaders may have once questioned embedding cloud-based solutions in the very heart of their business, the arduous pace of innovation and customers’ rabid hunger for more efficient and effective ways to grow revenues are fueling cloud-first decision points. Business leaders are increasingly siding with cloud vendors as their desires to shed legacy infrastructure costs and capitalize upon more rapid innovation cycles find wings and take flight.
Once competitors with the likes of Oracle Cloud, Netsuite now joins the ranks of other august Oracle solutions such as JD Edwards. So it seems that Oracle is taking a cue from big food brands, as this acquisition is a brilliant stratagem to provide its customers with options that fill its coffers regardless of the choice, and may leave customers with slightly less leverage in the broader ERP market.
Suffice it to say, calls that the acquisition is anti-competitive and will serve customers ill are likely, by and large, trumped up. As part of its public announcement, Oracle co-CEO Mark Hurd went out of his way to dispel anticipated rumors of the solutions demise post-acquisition.
“Oracle and NetSuite cloud applications are complementary, and will coexist in the marketplace forever,” said Hurd. “We intend to invest heavily in both products — engineering and distribution.”
While public releases by corporate executives can often be categorically disingenuous, Oracle’s treatment of PeopleSoft suggests a different story of continued investment by the parent company over the years. This suggests customers will continue to be in good hands for the foreseeable future. Besides, with such a sizable acquisition it is highly likely executives will be reticent to disrupt such a future potential cash cow.
Competitors Look Out
While customers shouldn’t have a lot to worry about, Intacct, Infor, Epicor, and other vendors of traditional on-premises systems should be worried.
“We expect this acquisition to be immediately accretive to Oracle’s earnings on a non-GAAP basis in the first full fiscal year after closing,” said Safra Catz, co-CEO, Oracle.
Translation? Oracle doesn’t expect any performance hiccups from Netsuite during the transition, and will likely be handled as an autonomous division within the large corporate structure. Additionally, Oracle will likely have larger dreams for its newly minted solution, and should draw substantial ramp investment to scale the platform (and team) for global deployment.
Navigating the Culture Clash
Let’s face it, the clash of cultures is a big part of why acquisitions are so difficult. Naysayers believe Oracle will quash the start-up culture Evan Goldberg spawned starting what was then known as NetLedger in 1998.
Those who believe this seem to forget that Goldberg was once Ellison’s chief of marketing, and received a friendly $125 million in venture capital from Ellison’s firm Tako Ventures — making this a homecoming of sorts. Goldberg should have very little trouble in navigating Oracle’s corporate culture to ensure he receives the attention due his desires.
What Does the Future Hold?
It’s not an uncommon strategy for large enterprises to seek reinvention through acquisition. Many will say that Oracle was unable to craft its own cloud-based strategy, so it turned to acquisition under shareholder pressure to compete in an increasingly cloud-centric world.
Whether this is true or not, all signs point to a profitable venture for these two firms. Oracle will do well adding additional cloud capabilities to its portfolio if it can withstand temptations to solely leverage Netsuite as a profit generator. Netsuite will enjoy the backing of a global powerhouse, and will do well with additional investment to expand its scale and reach.
Only one question remains … the one that really matters. Will shareholder value actually materialize, or will this acquisition be part of a future forgotten in the clouds?
Ken Stewart is a principal consultant, author and speaker at ChangeForge. Recognized as a 2015 Difference Maker and one of the Top 40 most influential people in his industry for 2013, Stewart has worked with organizations of all shapes and sizes to identify opportunities, as well as create and execute market-leading strategies.
Ken Stewart is the founder of ChangeForge LLC