Here's What Oracle Hopes to Accomplish With its $5.3 Billion Acquisition

Oracle's huge takeover represents its latest attempt to buy growth that it likely can't produce organically.

Jun 25, 2014 at 1:00PM

Technology giant Oracle Corp. (NYSE:ORCL) recently released a dud of an earnings report. It fell flat across several key metrics last quarter. While Oracle has long been known as a technology stalwart, led by a high-profile Chief Executive Offer in Larry Ellison, the past year has not been kind.

After several consecutive unimpressive earnings reports, Oracle is looking more and more like a relic of technological history. It's still deriving a disturbingly large part of its business from hardware, which is anchoring down the company.

Oracle's situation isn't being helped by the fact that it's rapidly losing ground to competition in software and services. For a database company, it was somehow late to the cloud revolution, and is at risk of being passed by (NYSE:CRM).

Oracle's organic growth has been almost nonexistent for several quarters now. In response, it's trying to engineer growth through acquisitions. Oracle's latest attempt to buy growth is its takeover of MICROS Systems, (NASDAQ:MCRS).

Here's what Oracle hopes to accomplish by buying MICROS, and why its questionable history of large acquisitions shouldn't give investors much confidence this time around.

If you can't beat 'em, buy 'em
After several weeks of speculation, Oracle recently confirmed it will buy MICROS for $68 per share. The deal is valued at $5.3 billion, or $4.6 billion after excluding MICROS' net cash. MICROS offers software for a range of industries, including retail, restaurants, and hotels. MICROS' services are used in everything from placing orders to making reservations.

The deal represents the biggest for Oracle since its 2009 acquisition of Sun Microsystems. This purchase set Oracle back $7.4 billion, or $5.6 billion net of cash.

MICROS is growing, so it will boost Oracle's top line. Revenue increased 10% in the most recent quarter and 7% over the past nine months. And, Oracle believes the transaction will be immediately accretive to earnings, based on likely cost synergies.

The exact level of accretion to Oracle shareholders remains to be seen, since Oracle is paying a hefty premium for MICROS. At a buyout price of $68 per share, Oracle is forking over a nearly 30% premium to where MICROS was trading just one month ago. Oracle is paying roughly 25 times forward earnings estimates for MICROS, which is concerning considering MICROS' fairly modest growth in recent periods.

Oracle looks like a lumbering giant
In some aspects, Oracle's takeover of MICROS looks more like an act of desperation than a shrewd tactical move. Oracle is still closely tethered to hardware, which is dragging down the company's growth. To that end, growth in hardware clocked in at just 2% in its recently concluded fiscal year. Because of this, Oracle's total revenue grew just 3% in fiscal 2014.

By contrast, Oracle is growing strongly in its software as a service, or SaaS, and platform as a service, or PaaS, businesses. Cloud revenue in these two areas jumped 25% last quarter, but since both segments still represent relatively small operations, they aren't able to lift the entire company.

The danger facing Oracle is that if it's not careful, it might start losing customers to nimbler rivals. is growing leaps and bounds ahead of Oracle. Consider that posted 33% revenue growth in 2013, then generated 37% revenue growth in the first quarter of the current year. Not only that, but the company recently upped its 2014 revenue forecast.

Management now expects at least $5.3 billion-$5.34 billion in revenue this year. The midpoint of its forecast would represent 31% revenue growth, yet another highly successful year.

It may be the case that with its acquisition, Oracle is trying to protect its customer base from being stolen by competitors' business applications.

Oracle throws money at its problem
Oracle believes the cloud-based services that MICROS offers will both complement its existing operations and prevent competitors from stealing away customers. Oracle has a habit of pursuing large acquisitions in an attempt to buy growth. What's concerning is that Oracle's growth is grinding to a halt, which casts doubt as to whether its last huge acquisition worked out as the company had hoped.

With this in mind, combined with MICROS' modest growth and the hefty premium Oracle is paying, it's far from guaranteed that this acquisition will be the catalyst that ensures Oracle's turnaround.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Bob Ciura has no position in any stocks mentioned. The Motley Fool recommends The Motley Fool owns shares of Oracle. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers