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On Monday, Oracle (NYSE:ORCL) announced it was purchasing RightNow (NASDAQ:RNOW) Technologies for $1.5 billion. As the linked AP article describes, RightNow's main product helps companies manage customers' questions and complaints. It is done over the internet, or cloud, instead of being installed on the physical system. So what does this deal do?

For RightNow: The $43 deal is about a 20% premium over Friday's closing price. Over the last 3 months, shares have traded mostly in the low to mid $30s. The recent 52-week high on the stock was $39.48, so shareholders are getting $3.50 over that. A year ago the stock was at $26, so you're up 65% in twelve months.

For Oracle: As the article from above also states, "The deal follows a smaller acquisition Oracle made in the space when it bought InQuira to expand its selection of products that help companies keep their customers happy.." Oracle is expanding their customer relationship management offerings, and the deal should close either late this year or early next year.

This is purely a deal to help Oracle's existing products, and not one that will have a big impact on the company's financial situation. RightNow's expected revenues for 2012 were $269 million, barely 0.7% of the roughly $40 billion Oracle will do next year. The $27 million in net income for RNOW is a drop in the bucket to the $13 billion or so Oracle might do.

Valuations: The deal values the equity of RightNow at approximately $1.43 billion. That implies a price/sales (trailing 12 months) of 5.8 and. The deal implies a P/E of about 55. The price to book (most recent quarter) would be 12.

Why do I bring these valuation metrics up? Well, there are a number of similar firms in the application technology industry that carry lofty valuations. Some of these businesses, which are involved in cloud computing, have similar, but not 100% the same, businesses to RightNow. I'm talking about companies like Salesforce.Com (NYSE:CRM) and SAP (NYSE:SAP).

Salesforce trades at a similar price to book of 12.35, but it's price to sales ratio (trailing) is over 9. The forward P/E is also high at 74. SAP, being a much larger and more developed firm, trades at a forward P/E of just 20 (Oracle's is just over 12 if you were wondering). SAP trades at a more realistic trailing price to sales of 3.8 (Oracle's is 4.4). So you see how this RightNow deal could have valuation impacts on several other firms.

Overall Impact: The main driver of this deal for Oracle was to extend its CRM software business and improve what it sells to customers. This was not a deal to bolster the top or bottom line. RightNow shareholders get a decent premium to Friday's close, and a nice 65% holding over the past year.

As far as the entire technology sector, it shows the difference between major firms. Oracle will go out and spend money on existing companies to improve its existing products and continue its growth. On the other hand, you have companies like Apple (NASDAQ:AAPL), which decides to do everything in house. Oracle is willing to pay a premium if it believes an existing company can help. Apple would rather spend their money to develop something on their own, to keep the circle close. Apple also does not want to pay large premiums. They'd rather fail internally where nobody would notice, as opposed to a large acquisition that completely flops.

Both strategies can work, depending on the company. Oracle shares are up 77% in the past 5 years, while Apple shares are up 400%. However, the S&P 500 is flat in the past 5 years, so Oracle isn't a bad investment. The company knows how to deliver and this deal is another example of them using their financial flexibility to strengthen their core business. I'm a long term buyer of Oracle (and Apple too!).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: What The Oracle-RightNow Deal Means For Other Tech Names