Once again, Larry Ellison illustrates his knack for understanding megatrends.
Oracle (NASDAQ:ORCL) just announced that it will shell out $2 billion for Acme Packet (NASDAQ:APKT), a developer of technology to improve the transmission of data across the Internet. The deal represents a 22% premium to APKT’s closing price around $16 on Friday.
It also sparked rumors that the sector could be poised for more consolidation, leading to varying gains among Sonus (NASDAQ:SONS), Procera Networks (NASDAQ:PKT) and BroadSoft (NASDAQ:BSFT). And that’s not an unreasonable thought.
Oracle has had a good sense of timing throughout the years. Since 2005, it has acquired more than 70 companies amounting to over $40 billion. Ellison, Oracle’s CEO, realized early on that he could buy assets on the cheap to get substantial cost efficiencies, plus he has potential leverage with the company’s core database business, which has been a reliable cash generator.
ORCL stock was down 3% midday Monday, but shares still have advanced roughly 7% year-to-date and set all-time highs to end last week. So is this the end of the momentum, or just a hiccup?
Again, the Acme deal shows how in tune Ellison is with megatrends. Acme Packet’s network technology is important for allowing quick access of mobile information — such as with video — which is becoming critical for enterprises. The deal also is consistent with previous Ellison deals for other cloud-based companies, including Eloqua, Taleo and RightNow, which provide critical enterprise functions like marketing, HR and customer support.
Oracle does face tough competitors like Workday (NYSE:WDAY), but the acquisitions have helped ORCL keep pace. Plus, the company knows how to cross-sell its massive customer base.
Another issue for Oracle is the general slowdown in IT spending, most recently evidenced by VMware (NYSE:VMW), which recently warned about its prospects, noting that both Europe and the U.S. remain weak.
However, Oracle should still be able to move forward, primarily because of its broad portfolio of technologies; customers can better integrate on top of Oracle’s platform. Also, ORCL tends to focus on products higher up the priority list with customers (for instance, most companies don’t want to rip out their databases).
As should be no surprise, Oracle’s shares are not cheap at 17 times earnings. The stock’s Monday pullback is a start, but considering Oracle has had a history of retreats, investors would best be served by waiting for even more of a discount before trying to move in.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook” and “High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders.” Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.