Oracle’s acquisition of NetSuite will contend with rivals

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Oracle Corp is making a move in cloud-based services, by purchasing NetSuite Inc. for $9.3B.
18 Jul 2016 – Bloomberg

Oracle has been trying for years to shift from selling software installed on corporate customers’ gear the old way to delivering it over the internet. Yet in its most recent quarter, the company said the cloud division accounted for less than 10 percent of sales. Buying NetSuite, one of the first cloud-services companies, will help Oracle compete against the likes of Salesforce.com Inc., Microsoft Corp. and SAP SE.

“NetSuite is really pioneering cloud and this will certainly add to Oracle,” said Bill Kreher, an analyst at Edward Jones & Co. “I think acquisitions are certainly consistent with the company’s long-term pedigree and strategy. You’ve got to pay for that type of growth.”

The deal had been rumored for months, not just because of its inherent logic but because the relationship between Oracle and NetSuite goes back decades. Oracle co-founder Larry Ellison has been a NetSuite investor since he co-founded the company with Evan Goldberg in 1998. Ellison and his family own about 45.4 percent of NetSuite’s common stock, according to a recent company filing. Zach Nelson, NetSuite’s CEO, ran Oracle’s marketing operations in the 1990s.

Oracle is paying $109 a share, a 19 percent premium over NetSuite’s closing share price Wednesday. The merger is the latest in a slew of business software acquisitions. Earlier this year, Microsoft agreed to buy LinkedIn for $26.2 billion. Meanwhile, Salesforce spent more than $2.5 billion to buy Demandware, which sells cloud-based e-commerce software, and Symantec said it would purchase Blue Coat Systems Inc. for $4.65 billion.

The industry is ripe for deals as big companies, bolstered by strong balance sheets, search for growth — and smaller companies look for new paths to expansion, according to Abhey Lamba, an analyst at Mizuho Securities USA Inc.

Salesforce could be an eventual target, said Anurag Rana, an analyst with Bloomberg Intelligence, though there are few buyers that are large enough to snap it up. Workday Inc., the cloud-based software company that provides tools for human resources could also be in play, Rana said, and Microsoft could be a buyer.

There was a time when Oracle executives came under fire for not doing enough to leverage the cloud’s potential– even as Amazon.com Inc. embraced the technology wholesale. Yet the company has gotten cloud religion, revamping its product lineup in the past several years and stepping up acquisitions.

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