Oracle's $1.9bn Deal to Buy Taleo - Analyst Blog
11 February 2012 - 3:45AM
Zacks
Yesterday, Oracle Inc. (ORCL) agreed to buy
Taleo Corp. (TLEO), a SaaS human resource software
provider, for $1.9 billion or $46 per share.
Following this announcement, shares of Taleo were up nearly 17%,
closing at $45.64, yesterday. Taleo has a clientele that spreads
across 5000 organizations. Taleo’s Talent Management Cloud helps
organizations to enhance human resource capabilities, improve
performance and drive growth.
We believe that this acquisition is further evidence of Oracle’s
continued focus on its cloud computing infrastructure. The
acquisition is expected to expand Oracle's public cloud offering.
The public cloud, which originally comprised existing products
including fusion applications, expanded the company’s penetration
into the SaaS application space.
Earlier, Oracle had locked horns with SAP AG
(SAP) for acquiring California-based
cloud-computing software company SuccessFactors Inc.
(SFSF), a developer of software used by
firms to evaluate employee performance. However, after losing out
to SAP, Oracle was on the lookout for a similar buying opportunity
in the SaaS space.
The Cloud Might Float Higher
SaaS has gained immense importance due to the increasing
adoption of cloud computing. According to market research firm
Gartner, sales of online software, which touched $10 billion in
2010, is expected to more than double to $21.3 billion in 2015,
much faster than traditional software.
Moreover, according to research firm Forrester, cloud computing
revenue is expected to increase from approximately $41.0 billion in
2011 to $241.0 billion in 2020. Meanwhile, Gartner projects revenue
of $148.8 billion by 2014, higher than Forrester’s forecast of
$118.7 billion for the same period.
In October 2011, Oracle acquired RightNow Technologies Inc, a
premier Software-as-a-Service (SaaS) provider and a rival of SAP
for $1.43 billion. The addition of RightNow also helped Oracle to
target Salesforce.com Inc.’s
(CRM) service cloud offering, taking the
competition between the two to the next level.
Our Take
Oracle remains very active on the acquisition front and
generally targets companies that can be integrated within its
existing or new product lines. From time to time, the company also
acquires organizations with competing technologies with the
intention of eliminating rival products. We believe that
acquisitions in the field of data management and cloud computing
will be beneficial for Oracle over the long term.
However, Oracle faces significant integration risks due to the
rapid pace of acquisitions within a short span of time, in our
view. We also note that Oracle is a late entrant in the field of
cloud computing compared to peers Salesforce.com and
Microsoft Corp. (MSFT). Hence, it might face tough
competition. Moreover, diminishing margins from its new software
licenses and sluggish hardware sales are near-term headwinds.
We remain Neutral on a long term basis (6-12 months). Currently,
Oracle has a Zacks #3 Rank, which implies a Hold rating on a
short-term basis.
SALESFORCE.COM (CRM): Free Stock Analysis Report
MICROSOFT CORP (MSFT): Free Stock Analysis Report
ORACLE CORP (ORCL): Free Stock Analysis Report
SAP AG ADR (SAP): Free Stock Analysis Report
SUCCESSFACTORS (SFSF): Free Stock Analysis Report
TALEO CORP-A (TLEO): Free Stock Analysis Report
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