On Monday Oracle officially announced a $US5.3 billion deal to buy a company called Micros Systems.
This is the biggest acquisition Oracle has made since it closed Sun Microsystems for $US7.4 billion in 2010 (which actually cost Oracle $US5.6 billion after factoring in Sun’s cash. With this deal, it actually cost $US4.6 billion net of Micros’ cash, Oracle said.)
Oracle paid $US68 per share, slightly higher than the rumoured $US67-and-change price expected, and a nice price for Micros shareholders. The stock had been trading near the $US58 mark for the past few days and under $US53 for most of April and much of May.
Word of the deal broke last week, right before Oracle released its forth-quarter earnings.
Micros makes software and hardware for the hospitality and retail industries, including “point of sale” cash register tech. It has some huge clients, including the Hilton, Hyatt and Marriott hotel chains.
The latest wave in the POS industry is to replace these devices with tablets, and Micros offers a Windows tablet for this purpose. So, this deal also gives Oracle a tablet.
Interestingly, Micros was already a big Oracle partner, had been helping it sell its database to hospitality businesses for the past 15 years, Oracle said.
Some Wall Street analysts think this was a a defensive move to keep up-and-coming cloud competitors away from Oracle’s customers: Matthew Healey, an analyst at TBR, wrote in a research note:
The urgency with which Oracle is evaluating solutions for the retail and hospitality industry indicates that the acquisition of Micros Systems is a defensive move to protect Oracle’s install base [from] other providers such as SAP and Salesforce.com.
But mostly, the acquisition is about buying revenue growth. The hospitality industry is in the midst of a tech revolution, moving from PC-based systems to tablets and cloud software.
In May, Micros reported third-quarter revenue of $US349 million, up about 11%, year-over-year. Revenue for the nine-month period was a little over $US1 billion, up 7.4% and it dropped $US142 million to the bottom line as profits (non-GAAP) for the nine months of the year, so far. It also upped its guidance for the full year, expecting between $US1.36 billion – $US1.385 billion in revenue and non-GAAP EPS from $US2.53 to $US2.57.
“We expect this transaction to be immediately accretive to Oracle’s earnings on a non-GAAP basis and to expand over time,” said Oracle President and CFO Safra Catz.
Oracle’s fourth quarter and year-end was a disappointment to investors. It was a two-year-in-a-row miss on Wall Street expectations on revenue growth for both the quarter and the year.
Oracle blamed the miss on its transition to cloud services, in which revenue is recognised as it is paid, not when contracts are signed, making it look like the company’s growth has slowed.
Some analysts, such as TBR’s Healey were good with that explanation and others were more sceptical. For instance, Pat Walravens, an analyst at JMP Securities, wrote in a research note:
While management engaged in a lengthy discussion about the shift toward the cloud, we think it is clear that, even accounting for a shift in revenue recognition, Oracle did not execute particularly well in the quarter, coming in at the low end of its guidance range for revenue, licence, and hardware and generating billings growth (which captures the impact of revenue deferrals) of 3%, below consensus of 5%. We think investors should remain cautious on this name as Oracle faces tough and focused competitors in each cloud product category (including Amazon Web Services, Workday, and salesforce.com) and needs to execute better and more consistently.