Oracle's Shopping List: SaaS, Virtualization, Health Care

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Includes: ARBA, CERN, CNQR, CRM, CTXS, MDRX, N, NOVL, ORCL, RHT, SFSF, TLEO
by: Eric Savitz

Monday’s rumors about a potential acquisition by Oracle (NYSE:ORCL) of Red Hat (NYSE:RHT) have apparently faded, but Larry Ellison’s appetite for doing deals is never sated. Whether or not Oracle decides to take a run at Red Hat, it is not going out on a limb to suggest that at some point Ellison is going to get the itch and make more acquisitions.

Research firm Wedge Partners today took a look at the potential targets and came up with plenty of candidates. They think the company is going to enter a more active acquisition period, with most of the focus on smaller venture-backed companies, but adds that they could do “a handful of acquisitions” in the $100 million to $500 million range. And maybe a bigger deal or two. In particular, they see Oracle targeting deals in Software as a Service, virtualization and health-care technology.

Here’s Wedge’s list of potential targets in each of the three sectors:
Sofware as a Service:

  • Salesforce.com (NYSE:CRM): Wedge notes that Ellison was an early investor and still holds his position; CEO Marc Benioff is a former ORCL exec. Wedge contends that “despite the bluster from both companies,” they rarely compete. They assert that ORCL’s SaaS offering is “greatly inferior” to CRM’. The firm claims that Ellison is “concerned about missing the boat on cloud computing.” Market cap is down to $4.3 billion.
  • Concur (NASDAQ:CNQR): They note that with operating margins of 12.9% and 18% quarterly revenue growth, CNQR, which provides employee expense management software, has been of the best performing SaaS companies over the past year. I’d note that with the company currently under fire over a diploma-gate scandal, the time might be right. Market cap $971 million.
  • Ariba (NASDAQ:ARBA): Expense management application provider which has been around for longer than most in this category. Market cap $780 million.
  • SucessFactors (NYSE:SFSF): Wedge says it believes ORCL actually made a run at SFSF, which sells HR management software, but that it wanted more than ORCL wanted to pay. Wedge contends SFSF “consistently beats ORCL in had-to-head opportunities,” and that it would be a good fit. Market cap: $400 million.
  • Taleo (NASDAQ:TLEO): Competes with SFSF, with strong in recruiting software. Wedge thinks ORCL could conceivably acquire both of them, but considers Taleo the more likely target, in part due to management team with “multiple ties” to Oracle and Peoplesoft. Market cap: $344 million.
  • Netsuite (NYSE:N): Ellison personally owns a majority of the stock; but Wedge considers this a long-shot acquisition target. Market cap: $665 million.

Health-care technology:

  • Allscripts-Misys (NASDAQ:MDRX): Sells software to health-care providers. Partners with ORCL in some areas. Market might be too high, Wedge says, but “from a strategic perspective, this could be a compelling acquisition for ORCL.” Market cap: $1.4 billion.
  • Cerner (NASDAQ:CERN): Another provider of health-care software, with a broader product offering than MDRX. Has made strides in personal health records. Price tag might be too high, but might be a better value than MDRX. Market cap: $3.6 billion.

Virtualization:

  • Citrix (NASDAQ:CTXS): Both companies have built virtualization technology on the Xen Hyper Visor, which would make integration easier. “CTXS has a number of products that already integrate with ORCL applications and the overlap between products is fairly minimal.” Market cap: $4.1 billion.
  • Novell (NASDAQ:NOVL): Also has built virtualization offerings on Xen. Also owns SUSE Linux, which could replace Oracle’s own version of the open-source OS. Some overlap in identity management and systems management.Market cap $1.5 billion; has more than $1.1 billion in net cash.

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