MKM Partners: Oracle-NetSuite Deal Is Bold, Fraught With Risks And Opportunities

Oracle Corporation ORCL announced its offer to acquire NetSuite Inc N for $109 per share in cash, or approximately $9.3bn. The represents one of the “largest and most expensive deals in SaaS history,” MKM Partners’ Kevin Buttigieg said in a report. He maintained a Neutral rating on Oracle, with a price target of $42.

Most Expensive Deal in SaaS
Analyst Kevin Buttigieg noted that Oracle’s offer was nearly 30 percent higher than the acquisition of Concur Technologies, Inc. CNQR by SAP SE SAP and three-times larger than the acquisition of Demandware Inc DWRE by salesforce.com, inc. CRM.

Opportunities And Challenges

“While N provides overlapping functionality, we expect that ORCL at least initially will pitch it as its solution for SMB's and in the manufacturing/product goods industries, while pitching Fusion for larger customers,” Buttigieg wrote.

Referring to the challenges, the analyst commented that there was the possibility of conflict. NetSuite had indicated earlier that it had started seeing Fusion in competitive bids only in the past year, but did sell into Oracle on-premise customers. “And so the question is, does ORCL lead into these accounts with Fusion or N?”

The acquisition “overlaps with existing ORCL technology in a greenfield market…and it does raise questions of the effectiveness of ORCL's Fusion both within and outside ERP,” Buttigieg mentioned. He expects the deal to be initially dilutive by about $0.06, or 2 percent.

Several investors had been concerned that Oracle’s growth was coming at the expense of its on-premise business. However, the purchase of NetSuite would allow Oracle to bring its on-premise in-house, thereby improving its competitive positioning.

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