These are Halcyon days for Larry Ellison. Not only is his stock enjoying a Renaissance (5-year highs) but there is arguably no software executive who loves to see himself and his company in print more than Larry does. Having seemingly given Chuck and Safra and unending green light, it seems we can't go more than a few weeks without reading about another Oracle acquisition.
What's been fascinating about this unprecedented M&A binge has been the diversity of purchase...
- Some have been massive, some have been tiny
- Some have been vanquished rivals, others have been about filling in whitespace
- Some have been perceived as top-tier vendors in their niche, others not so
- Some have been private, many have been public
Regardless of what anyone thinks about the long-term viability of this strategy, it's difficult to argue that Larry and his right hand man (and woman) have not accomplished their stated goals thus far. Clearly, Oracle is using the maturity of the industry to pay reasonable prices for most of these assets. Putting aside the potential strategic value of any given acquisition, they've used discipline in terms of the financial returns they can generate from the reliable maintenance revenue streams each deal brings with it. On the strategic front, the sum total of these purchases means the Oracle bag carriers have an unending supply of things to pitch CIOs and other IT purchasing agents.
Tonight, Oracle jumped into the M&A fray again with the announced $440m cash acquisition of content management vendor Stellent (STEL). Oracle had a gaping hole in the ECM (enterprise content management) space and Stellent was one of the more viable remaining plays there. With 4,500+ customers and $130mm in TTM revenues, Stellent was running neck and neck with Interwoven (IWOV), Vignette (VIGN) and Open Text (OTEX) in the segment. Industry leaders Documentum and FileNET had already been swallowed up by EMC and IBM, respectively.
What are Stellent's relative strengths?
- Excellent customer base
- Breadth of core ECM functionality (i.e, it can legitimately check off most boxes in an RFP)
- Strong focus on Sarbox and compliance processes
How much did Oracle pay?
- At $440mm ($13.50 per STEL share), that implies an enterprise value of $370mm approximately
- At Stellent's current run rate ($130mm), that equates to 2.8x EV/sales
- On a P/E basis, that implies 29x and 20x CY06 and CY07 estimates, respectively
Oracle has long been rumored to be in the market for an ECM player, as it was an obvious area of white space in its stack approach. The interesting question will be what this means for the remaining independent vendors (VIGN, IWOV, OTEX) as well as some of the smaller private content management vendors. Will HP jump into the fray? Would SAP consider this an important market to have in-house functionality? Time will tell.
Note: At the time of this writing I, and/or funds I maintain discretionary control over, maintained long equity positions in SAP but did not maintain a position (long or short) in EMC, IBM, ORCL, OTEX, IWOV, VIGN or STEL. We also may, at times, carry derivative options on underlying positions as a hedge.