Oracle’s ‘surprise’ NetSuite acquisition

Published on the 29/07/2016 | Written by Donovan Jackson

Oracle and Netsuite

As late as last week, at least one major local Oracle and NetSuite partner didn’t see it coming…

After we noted chatter about the possibility of this deal last week, confirmation has emerged that Oracle is indeed lining up NetSuite in one of its biggest buys to date. It is proposing a takeover for a hefty US$9.3 billion, further consolidating the market for cloud ERP.

While rumours have swirled for some time (largely fueled by Larry Ellison’s substantial shareholding in NetSuite), a Google search last week threw up little in the way of substance, with obscure websites leading us to contend that the talk tended more towards the ‘unfounded’ end of the gossip spectrum.

All that’s changed with Oracle’s official press release setting out some details of the transaction. It said ‘Oracle today announced that it has entered into a definitive agreement to acquire NetSuite (NYSE: N), the very first cloud company. The transaction is valued at $109.00 per share in cash, or approximately $9.3 billion.’

In the press release, CEO Mark Hurd described the product sets of each vendor as ‘complementary’ and, demonstrating a Nostradamus-like ability, added that they “will coexist in the marketplace forever.”

NetSuite founder Evan Goldberg said the combination is a winner for NetSuite’s customers, employees and partners, while the company’s CEO Zach Nelson said NetSuite will benefit from Oracle’s global scale and reach to make its software available in more industries and more countries.

The transaction is expected to close in 2016, subject to receiving certain regulatory approvals and satisfying other closing conditions including NetSuite stockholders tendering a majority of NetSuite’s outstanding shares in the tender offer.

There’s a somewhat unusual detail in the Oracle statement, too: ‘…the closing is subject to a condition that a majority of NetSuite’s outstanding shares [are] not owned by executive officers or directors of NetSuite, or persons affiliated with Larry Ellison, his family members and any affiliated entities, be tendered in the tender offer.’

The Wall Street Journal explained why this condition was included: ‘The deal already is raising questions about the role of Mr. Ellison, Oracle’s chairman, who is the biggest shareholder in both companies.

‘Mr. Ellison owns 27% of Oracle’s common shares, according to a September 2015 regulatory filing, a stake worth today about $47.6 billion. Entities owned by him or his family held nearly 40% of NetSuite’s common shares as of April, according to regulatory filings, a stake worth $3.5 billion at the acquisition price.

‘Cowen & Co. analyst J. Derrick Wood noted the “high degree of litigation risk for Larry Ellison” in a Wednesday research note contemplating Oracle’s possible acquisition of NetSuite, particularly if Oracle paid a multiple higher than its historic transactions for similar cloud software companies.

‘By Mr. Wood’s analysis, Oracle paid 11 times NetSuite’s previous 12 months’ revenue, whereas it paid about 6.5 times trailing 12-month revenue for its last six similar acquisitions.’

What it all means for NetSuite partners is uncertain, given the wrapping has just come off the deal. However, contacted for comment last week on its acquisition of long-standing NetSuite partner BPR Solutions, and asked about the chatter surrounding Oracle potentially buying NetSuite, Fusion5 CEO Rebecca Tohill said, “I haven’t heard much about this; however, Fusion5 is an Oracle partner as well as a NetSuite partner.  Life would be fine either way.”

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