Oracle's Decade of Acquisition: Innovative or Just Well-Financed?

CEO Larry Ellison's "about face" on acquisition strategy, beginning with the hostile takeover of PeopleSoft in 2003, kicked off a decade of unprecedented software vendor consolidation, altering the marketplace for customers and vendors alike.

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It was January 2000. Post-Y2K euphoria still lingered over the offices of businesses and high-tech vendors everywhere—the bubble had not yet burst on the party—and Oracle Corp., the relational database king founded in 1977, was riding high on good fortune: Its stock peaked and split, and the vendor was set to ship E-Business Suite Release 11i, which Oracle touted as the first integrated-suite of enterprise applications.

Oracle claimed that by chowing on its own E-Business Suite dog food, it had saved the Redwood Shores, Calif.-based company a cool $1 billion a year.

But Oracle wanted more: It was tops in the database and middleware spaces, but execs, including Chairman and CEO Larry Ellison, were tired of playing also-ran to others—SAP, PeopleSoft, Siebel—in the enterprise apps (ERP, CRM and supply chain) market. They knew they couldn't dislodge SAP from the top spot any time soon, but number-two might be within reach. But how?

What would ensue during the course of the next 10 years would not only reshape Oracle, forever changing its growth and product-innovation strategies, but it would also transform, to varying degrees, the enterprise software landscape and many customers' future technology plans and purchases.

"Oracle's acquisition strategy has altered the vendor landscape in a number of markets," says Paul Hamerman, VP of enterprise applications at Forrester Research, via e-mail. In addition, he says, Oracle's "acquisition strategy has been a success for the company and its shareholders." In fact, revenues grew from $10 billion in FY2000 to $23 billion in FY2009.

What about the results for Oracle's diverse groups of willing and not-so-willing customers? Industry analysts interviewed for this article claim it's a mixed bag: "Customers have benefited from increased number and range of solutions—from continued investment, such as Apps Unlimited, and especially from the integration work that Oracle has done," says Warren Wilson, research director at Ovum. "But they're increasingly locked in to Oracle—with far fewer options and switching costs [that] are high."

"We'd Be Interested in Buying Almost Anything"

The watershed event for Oracle this decade was on June 9, 2003, when executives launched an unwelcome bid to acquire ERP stalwart and archrival PeopleSoft, which itself was in the midst of acquiring J.D. Edwards. Oracle's hostile, litigious takeover scheme, finally consummated some 18 months later in January 2005, marked the opening salvo in Oracle's new acquisition and growth strategies, a path which it had appeared unwilling to take on such a grand scale in the past.

"We'd be interested in buying almost anything," Ellison proclaimed at a meeting with financial analysts just a month after the PeopleSoft announcement, in July.

True to Ellison's word, by the close of 2009 Oracle had acquired 56 companies—30 of which filled out Oracle's applications portfolio, and 26 of which spruced up its technology lines of business. (The fifty-sixth acquisition is that of Sun Microsystems, which today is still pending.)

Oracle's Healthy Appetite

The application and database vendor made 56 acquisitions since 2005—from the hostile takeover of PeopleSoft in January to the pending* purchase of Sun Microsystems in 2009.

Oracle Business Line
2005 2006 2007 2008 2009
Applications Acquisitions 6 10 5 6 3
Technology Acquisitions 7 3 6 5 5*

Forrester Research has diplomatically referred to Oracle as an "active acquirer" during the decade. Others might not be so polite, though, in viewing the big picture, the acrimonious PeopleSoft acquisition has been the exception, not the norm, as these transactions go. Deals "almost never end hostile," Ellison told Barron's in 2008. (To read more on this topic, see Oracle's M&A Strategy Gets Some Respect.)

Of course, Oracle's spending spree isn't representative of most high-tech companies' M&A strategies. Not many enjoy Oracle's generous 90 percent software-support profit margins or $8.8 billion in cash on hand—especially these days. Today, depending on your definition, Oracle is the or one of the largest software companies in the world: Nearly 350,000 customers (including "100 of the Fortune Global 100," Oracle marketing loves to point out) in more than 145 countries.

Its most recent quarterly data reveals that during a global economic recession—with steep drops in software spending by its customers—the vendor was able to increase profitability and operating margins, year over year. And, in comparison to rival SAP, the returns from Oracle's in-house and acquired customer bases have been able to cushion deep dives in software revenues.

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