Oracle's Discipline Pays Off As NetSuite Deal Succeeds

Oracle Corporation ORCL overcame a large hurdle when it announced over the weekend it received sufficient shares tendered from NetSuite Inc N investors to close the acquisition at a price of $109 per share.

Ed Maguire of CLSA commented in a report that the acquisition represents a "strategic positive" for Oracle, especially since it was completed at $109 per share and not the $133 per share some of NetSuite's large investors demanded.

Maguire said the price tag of $109 per share values NetSuite at 9.4x sales of $958 million or 7.5x 2017 sales of $1.2 billion. As such, Oracle maintained a "disciplined valuation approach for acquisitions" and also serves as "validation for the approach to the deal."

Maguire suggested that the acquisition makes strategic and business sense for Oracle as the company shifts its sales organization towards more of a SaaS model. As such, this positions Oracle to better serve customers in the small and medium business segment, which happens to be NetSuite's "sweet spot."

"The signal that Oracle has sent about its valuation principles should bolster investor confidence in a disciplined process," Maguire concluded. "We expect Oracle will continue to make SaaS and other related acquisitions to bulk up its applications portfolio, with an eye toward vertical expertise and scale."

Nevertheless, Maguire maintained an Underperform rating on Oracle's stock with an unchanged $42 price target.

Analysts at MKM Partners separately highlighted three stocks that could gain on an Oracle-Netsuite deal.