Silicon Valley Watcher - Former FT journalist Tom Foremski reporting from the intersection of technology and media

Who Will Oracle Target Next In M&A? How About HP...

Posted by Tom Foremski - August 17, 2010

Stephen Jannise, ERP market analyst at Software Advice, has put together a poll asking who's next on Oracle's M&A list. [NasdaqGS: ORCL] Oracle Mergers & Acquisitions: Who's Next?

He has a chart of Oracle's acquisitions over the past five years:

He has made a few educated guesses on who could be next, concentrating on some of the larger potential targets. And Oracle's acquisition of Sun Microsystems expands the potential field beyond enterprise software companies.

He has divided the choices up into the following:

Fairly Straightforward Ideas

  • Teradata
  • . This data warehousing and business intelligence (BI) play would check a lot of boxes, augmenting Oracle's strength in databases and BI. Moreover, Teradata brings strength in key verticals. At 21x P/E, the price might work.

  • Informatica
  • . Another data warehousing play, Informatica would complement Oracle's leadership in database and business intelligence. While the deal would be bite-sized, Oracle would have to eliminate a lot of costs to make it accretive.

  • . Like the BEA Systems deal, TIBCO would bring the benefit of adding a middleware market leader while also bolstering the Fusion story. With a P/E of 34x, this is another deal where Oracle would have to cut costs deeply.

    Messy, But Potentially Profitable

  • Computer Associates
  • . Computer Associates was a consolidator long before Oracle ramped up its M&A efforts. Of course, that history comes with some messy situations along the way. The deal could work financially given CA's modest valuation at 14x earnings, but might not be worth the stress or integration.

  • Sungard
  • . This very large applications vendor and its various business units bring leadership positions in a range of vertical markets. The company was taken private a few years ago by savvy private equity investors, so an exit event is likely just over the horizon. However, Sungard brings a large services organization that might not be Oracle's thing.

  • Infor
  • . Infor is another major applications consolidator backed by smart private equity. The company is similar to Oracle in that its M&A strategy is engineered for healthy profits; however, Oracle may not be willing to take on such substantial integration challenges in the applications layer.

    Bold Moves into the Network Layer

    Most people will tell us that these ideas are crazy. They are far afield from Oracle's traditional markets and too expensive. We agree, but stranger deals have happened (e.g. eBay/Skype).

  • Research in Motion
  • . This one is far fetched, but given the massive popularity of mobile applications, we had to throw it in. RIM has the strongest enterprise presence of the various mobile players, so it would be an ideal target. The valuation metrics might be doable, but the size may be hard to digest.

  • Juniper Networks
  • . An acquisition of Juniper would be a bold move into the network layer of the stack. If Oracle wants to play in that market, Juniper is the strongest target (Cisco is too big, too expensive). Of course, Juniper isn't cheap and cost synergies would be hard to come by given limited overlap.

  • F5 Networks
  • . If Oracle wants to strengthen its application delivery and data center story, F5 would be an interesting step. The company's application delivery and networking systems would provide a growth vehicle in the networking layer.

  • Brocade
  • . Like F5, Brocade would be a strong addition to Oracle's data center and enterprise campus network offerings. However, like Juniper, Brocade is not the cheapest option listed here, as it currently sits at a 29x P/E

    Pricey Buys in Hot Markets

  • VMware
  • . It's tough to come up with a financial scenario where this deal gets done, but its fun to think about. VMware is benefiting phenomenally from the growth of the virtualization market it pioneered. This would be another huge boost to Oracle's data center offerings.

  • EMC
  • . This data storage behemoth would be a huge addition to Oracle's presence in the servers and storage layer of the stack. We think Oracle would love to own this market leader, but it may well be too big and too expensive at a 29x P/E.

  • . An acquisition of Salesforce has been rumored before, but the success of this SaaS leader may have put it out of reach. Salesforce would catapult Oracle to on-demand leadership, but it comes at a steep price. Oracle would be more likely to wait until Salesforce stumbles some day.

  • Allscripts
  • . The healthcare market is hot as providers adopt electronic health records (EHRs) to meet government requirements. Allscripts is the biggest player in the EHR market and is a consolidator itself. Its recent move to acquire Eclipsys, as well as its rich valuation, might take Allscripts off the table.

    You can place your vote here: Oracle Mergers & Acquisitions: Who's Next?

    Foremski's Take:
    It's a pretty good selection. But there is one company that is missing: Hewlett-Packard [NYSE: HPQ].

    Yes, it is a big pill to swallow: In terms of market cap Oracle is about 22% larger at nearly $116 billion compared with $95.3 billion for HPQ. But the consolidation opportunities with Sun are quite large and must be very tempting. Also, a leaderless HP makes it very vulnerable.

    Plus: Larry Ellison is a fan of Mark Hurd -- he could bring him back to integrate HP/Sun/Oracle.

    An Oracle/HP combination would create a formidable competitor to IBM. It would bolster HP's service group and its troubled middleware and software groups.

    But it would be devastating to Silicon Valley's already hard hit employment picture -- tens of thousands would lose their jobs.

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