For some time, rumor had it that Oracle (Nasdaq: ORCL) would buy small-cap Stellent (Nasdaq: STEL), which develops enterprise content management, or ECM, software. For the past few years, however, Oracle was focused on integrating mega-acquisitions. Now, with this mostly complete, the company can focus on making smaller deals, and its agreement to buy Stellent is certainly a good fit.
The price tag is $13.50 per share, or $440 million in cash. That's a nice 27% premium to Stellent's current share price; as recently as June, the stock was trading around $9.
Stellent's strong ECM offering allows customers to manage all phases of content's life cycle -- the creation, approval, publishing, searching, and archiving of content. This helps companies improve their analysis and decision-making, while enabling better compliance with regulations such as Sarbanes-Oxley for corporate governance, the Health Insurance Portability and Accountability Act, and others. Stellent has recently begun venturing into cutting-edge approaches, such as enterprise blogs and wikis (which allow for project management).
In terms of the fundamentals, Stellent's business is growing at a decent pace. In the second quarter, revenues increased 12% to $33.7 million and net income increased 139% to $1.3 million, or $0.04 per share.
In fact, over the years, Oracle has tried to build its own ECM system, but the results have been lackluster. The company has made a good choice with Stellent, which not only has strong technology but also an extensive base of 4,700 customers. Its marquee customers include Home Depot (NYSE: HD), Merrill Lynch (NYSE: MER), and Procter & Gamble (NYSE: PG), and they'll certainly be prospects for other Oracle products.
Better still, Oracle didn't pay an excessive price for Stellent. The enterprise value of the company is roughly $345 million (subtracting the company's $95 million in liquid assets from its market cap). The resulting multiple of 2.4 times revenues is in the sweet spot of other deals, such as IBM's (NYSE: IBM) recent purchase of FileNet, a major ECM player.
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Fool contributor Tom Taulli does not own shares mentioned in this article.
He is ranked 37 out of 11,654 in CAPS, The Motley Fool's new investment community.
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