On 16 January Oracle and BEA Systems announced an agreement under which Oracle will acquire BEA Systems, offering $19,40 per share.
The agreement, valued at approximately $8,5bn, concludes the protracted chain of events initiated by Oracle's offer in October 2007 valuing BEA at $17 per share.
Ever since Oracle made its initial bid in October 2007, the acquisition of BEA was thought to be a matter of time. The brokered deal could be interpreted as a win for all parties involved. Oracle's bid proved successful without meeting BEA's demand of $21 per share.
BEA, boosted by better than expected results, held out for a healthy premium for its shareholders, including the activist Carl Icahn who was vocally advocating the sale. The price per share offered was 42% higher than before the October bid and 72% higher than the share price in August 2007.
What BEA customers get from the deal is open to debate. At the very least, the uncertainty regarding the future status of BEA is over.
The impact of the combined entity on the enterprise software market is also a matter of speculation. In some quarters this is considered merely as a market-share acquisition. Datamonitor considers this to be somewhat unkind. Oracle is understandably attracted to BEA's solid customer base, recurring revenues, far from trivial amount of cash reserves (the deal includes $1,3bn of BEA's cash in hand) and the desire to catch up and eclipse IBM in the middleware market.
Although Oracle is never shy to make bold claims, the statement regarding its market leader position in all segments of its operations, made during the BEA acquisition call, have certainly gained in credibility.
While Oracle and BEA product lines overlap, there are several interesting sales and product synergies. Given the current state of recent Oracle acquisitions, it is reasonable to expect that BEA product lines will continue to operate independently, at least in the medium term.
It is also reasonable to expect that both the existing and acquired middleware product lines will evolve and improve through cross-breed fertilisation of best-in-class modules across Oracle's middleware product line portfolio.
Candidates for cross-pollination are many. On the one hand they include including BEA's portal, enterprise social computing, presentation layer technologies, complex event processing, virtualisation, and perhaps business process management; and on the other they cover Oracle's analytical tools and applications.
Larry Ellison, Oracle's CEO, also highlighted the potential impact of a combined offering in certain industry verticals and regional markets, citing the telecommunications industry and the Greater China region in particular.
Perhaps the most interesting aspect of the acquisition is the potential impact on Oracle's Fusion roadmap, both in terms of the Oracle Fusion Middleware platform and Oracle Fusion Applications.
The BEA acquisition may inject new momentum into Fusion projects and strengthen the Fusion offerings further.
Yet, the risk of development frictions and market confusion is clearly present. For those reasons, Datamonitor identifies the execution of the Oracle Fusion roadmap as a key parameter in the eventual success of the BEA acquisition in particular and Oracle's future application portfolio in general.
The impact of the deal on M&A; activity and the competitive landscape is less clear, given the fact that this is just a conclusion of a bid initiated in 2007. Nevertheless, the acquisition does fit well with the ongoing consolidation of the enterprise software market and the growing scale of M&A; activity.
Datamonitor believes that the signs of potential economic slowdown in 2008 will not hamper these trends. Much to the contrary, consolidation will proceed apace both due to the acquisition chain-reactions of a kind witnessed in the BI market in 2007, and the fact that market conditions will continue to favor vendors of significant scale.
If anything, Datamonitor would not rule out an escalation in scale of M&A; activity in 2008, with an increased frequency of blockbuster deals and mergers of equals.