Oracle on Acquisition Spree - Analyst Blog

Oracle Corp. (ORCL) announced the acquisition of Convergin, a leading software provider of real-time service brokering solutions. The acquisition will enable Oracle to step up the deployment of next-generation pre-paid and value-added services in the communications industry besides lowering the total cost. 

Convergin's Service Broker platform helps communications service providers manage services for a wide range of networks and application platforms, including pre-paid charging. The company said that Convergin’s products will complement its own Communications' integrated product suite such as Communications Billing and Revenue Management, Oracle Communications Converged Application Server and Oracle Communications service fulfillment applications. 

The transaction is expected to close in the first half of 2010. Financial details of the transaction were not disclosed. 

Recently, Oracle also announced the acquisition of AmberPoint, a leader in Service-Oriented Architecture (SOA) Management, which is expected to close in the first half of 2010. 

AmberPoint’s SOA management products will extend Oracle Fusion Middleware’s SOA capabilities, including Oracle SOA Suite, Oracle SOA Governance and Oracle Enterprise Manager, accelerating the resolution of application performance and business transaction issues. The solutions will help improve performance and reduce IT costs through end-to-end SOA management and Business Transaction Management solutions. 

Oracle is very active on the acquisition front and chooses targets that can be integrated within existing or new product lines. From time to time, it also acquires companies with competing technologies with the intention of killing off rival products. This has provided a competitive edge to the company. 

Recently, Oracle completed the acquisition of Sun Microsystems, Inc. (JAVA), a provider of enterprise computing systems, software and services for $7.4 billion ($9.50 a share) or $5.6 billion net of Sun's cash and debt. 

In our opinion, Oracle will achieve much stronger growth and momentum in fiscal 2011 and beyond due to accretive synergies from the Sun acquisition. Besides, the acquisition will strengthen its competitive position in the middleware business and increase its developer base in enterprise computing. 

While Oracle is expected to become the no. 1 player in the database software market with the acquisition of Sun, ahead of International Business Machines Corp. (IBM), we remain concerned about the company’s integration of Sun. 

Oracle has grown its business principally through acquisitions, which have been weakening the balance sheet through a high level of goodwill and intangible assets, which totaled $25.7 billion or 47.7% of total assets as of November 2009. Moreover, increased acquisitions limit organic growth and make comparisons difficult. Further, Oracle incurs high restructuring charges related to acquisitions made in the past. 

However, acquiring companies at regular intervals will enable Oracle to take out its competitors and compete against larger vendors such as IBM, its biggest database software rival, as well as Hewlett-Packard (HPQ) and Cisco Systems (CSCO).
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