Oracle Buys NetSuite to Bolster Cloud Operations

Oracle has entered into a definitive agreement to acquire NetSuite, the very first cloud company, for $109 per share in cash, or approximately $9.3 billion.

The addition of NetSuite will enable Oracle to expand its ability to support customers of any size in more industries and more countries, the two companies said. NetSuite provides a suite of cloud-based financials/enterprise resource planning (ERP) and omni-channel commerce software that runs the business of more than 30,000 companies, organizations, and subsidiaries in more than 100 countries.

"This is another clear signal that Oracle is trying to increase its relevance in the cloud and increase its percentage of revenue from SaaS in order to maintain its appeal to the street. However, it does nothing to address business customers' growing demand for mobile commerce and productivity solutions," says Mike Elmgreen, CMO of Handshake.

"Coming on the heels of Salesforce's acquisition of Demandware, the Oracle and NetSuite deal shows that the titans of software are willing to pay a high price to deliver a unified platform for ERP, CRM, and commerce. It will be interesting to see if this approach is effective with enterprises accustomed to buying best-of-breed solutions," adds Elmgreen, who expects little impact on customers in the short term. "While Oracle has a history of acquiring and integrating businesses over the past two decades, the process of bringing NetSuite into Oracle will likely slow down NetSuite's pace of innovation as they sort out the overlap in products and people as a result of the acquisition."

"Oracle and NetSuite cloud applications are complementary, and will coexist in the marketplace forever," said Oracle CEO Safra Catz in a prepared statement. "We intend to invest heavily in both products—engineering and distribution."

The acquisition is expected to be immediately accretive to Oracle's earnings on a non-GAAP basis in the first full fiscal year after closing.

"NetSuite has been working for 18 years to develop a single system for running a business in the cloud," added NetSuite founder, chairman, and chief technology officer Evan Goldberg, in a prepared statement. "This combination is a winner for NetSuite's customers, employees and partners."

The transaction is expected to close in 2016. The closing of the transaction is subject to receiving certain regulatory approvals and satisfying other closing conditions, including NetSuite stockholders tendering a majority of NetSuite's outstanding shares in the tender offer. In addition, the closing is subject to a condition that a majority of NetSuite's outstanding shares not owned by executive officers or directors of NetSuite, or persons affiliated with Larry Ellison, his family members, and any affiliated entities, be tendered in the tender offer.

Helgi Hermannsson, CEO of workplace management software firm Sling, thinks there will be more deals like the Oracle acquisition of NetSuite.

"Everybody wants to rule the cloud. It is the biggest battleground of software today," Hermannsson explains. "Oracle's mission is to become the biggest company in the cloud, which will not sit well with players such as Salesforce, Microsoft, and others. Those companies and other big players are looking to build a full-service offering to their clients."

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