U.S. software firm NetSuite Inc announced on Wednesday they are being taken over by business software maker Oracle Corp in a deal thought to be worth around $10 billion.
The deal is seen by many as an effort by Oracle to get a foot in the door of one of tech’s fasting growing fields, cloud computing.
Markets buzzed on news of the buyout, with NetSuite shares jumping a huge 19 percent to $108.08 after the noon session. Oracle shares remained at $40.95.
“Some might say it’s an expensive purchase for Oracle, with the current share price just under what they are offering,” said Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management in a phone interview.
“We see this as a shrewd buy. The software and business services sectors have been overlapping for a while now and companies, which cover both bases are outperforming estimates, sometimes by 10 to 15 times the sales. Nearly 10 percent of Oracle’s revenue comes from cloud-software sales currently,” Lane added.
Both NetSuite and Oracle supply companies with business software applications that help them automate front and backend tasks across a wide range of sectors.
Given the decline in profits for the traditional software licensing business model Oracle, along with most of its rivals such as Microsoft, has tried to concentrate more on its ability to deliver applications to end users via cloud systems. This delivery method is being favored by most clients these days, especially small businesses who can’t afford their own hardware and tech workers.
Oracle has been very active with M&A in the sector, having already taken over cloud based firms Opower and Textura. The recent addition of NetSuite will add further clout to the company’s cloud expertise and will certainly increase earnings at the end of the first fiscal year of the buyout. NetSuit have reported profits that have exceeded forecasts for the past seven quarters.
Although the current deal is said to be overseen by a committee of independent executives, Larry Ellison, Oracle Executive Chairman, and his close family own about 50 percent of NetSuite shares, according to the company’s own released data.
NetSuite were the first firm to offer business apps over the internet in 1998, and have been pioneers in the cloud computing sector ever since. Their CEO, Zach Nelson, worked for Oracle for two years, heading up their marketing department.
