Oracle has a reputation as an acquisition-hungry IT company even before its latest deal with Sun Microsystems. Analysts suggest that its acquisitions of PeopleSoft, Siebel and other companies may help Oracle with integrating Sun into its post-merger strategy. A well-executed Oracle-Sun deal has the potential to strengthen competition against IBM, Hewlett-Packard and other IT giants.
Oracle's
April 20 purchase of Sun
Microsystems, in a deal worth $7.4 billion, is but the latest in the
company's long line of acquisitions.
In 2009 alone,
Oracle has initiated a round of buyouts that included mValent,
a group that produces configuration management solutions, and Relsys
International, which develops drug safety and risk management solutions. Oracle
has been buoyed by displaying robust financial health despite the global
recession, with third-quarter fiscal 2009 earnings up 3 percent over the same
quarter last year.
Among Oracle's
11 acquisitions in 2008 were Lodestar and Interlace Systems.
However, Sun Microsystems
is a larger and more mature company that comes with its own set of buyout
challenges. The heated rumors over the past few months of its possible
acquisition, which included IBM's reported
talks in early April 2009, to purchase Sun for anywhere from $6.5 billion to $7
billion, highlight both Sun's value to any company looking to expand its
enterprise hardware and software market share - but also the complexities that
come with trying to integrate such an entity into a pre-existing corporate structure.
Nonetheless, at
least a few analysts think that Oracle will use its knowledge from past deals,
including the PeopleSoft and Siebel acquisitions, to make the Sun acquisition
run as smoothly as possible.
"Oracle has made
these acquisitions work from a financial perspective," Ray Wang, an analyst
with Forrester, wrote in an e-mail, "with year-over-year quarterly profit growth
that has been generally well above 20 percent."
In Wang's
opinion, Oracle utilized several factors in making these deals succeed.
"Oracle's first
set of deals - i.e., PeopleSoft and Siebel - focused on installed base
acquisitions that provided a strong foundation of support and maintenance
customers," Wang wrote. "This base of recurring revenues provided Oracle with
the room to continue strong R&D investment while reducing overall costs."
When
Oracle integrated PeopleSoft in 2005, it wasted little time in
institutionally asserting, through a number of policy changes, that the company
was now an Oracle shop - however, research
at the time showed that a number of former PeopleSoft clients considered
defecting.
"In the late
1990s, Oracle made a major commitment to re-engineering its back-office
processes using its own applications," Wang added. "As a result, Oracle has become
highly efficient, with a ratio of general and administrative expenses to
revenues of 3 to 4 percent."
Those lessons
and processes, combined with having two former investment bankers heading their
post-merger integration teams, indicates to Wang that Oracle has a solid chance
of adding Sun and its components to the portfolio in a cost-effective manner.
Nicholas Kolakowski is a staff editor at eWEEK, covering Microsoft and other companies in the enterprise space, as well as evolving technology such as tablet PCs. His work has appeared in The Washington Post, Playboy, WebMD, AARP the Magazine, AutoWeek, Washington City Paper, Trader Monthly, and Private Air. He lives in Brooklyn, New York.
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