Siebel a Deal Maker?

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Larry Ellison of Oracle (Nasdaq: ORCL), uber-consolidator of software, mentioned Siebel (Nasdaq: SEBL) on his short list for buyout candidates. Well, Siebel is not waiting to get taken out; rather, it is using its cash hoard to become a consolidator itself. Its latest move is the purchase of edocs for $115 million in cash (there may be additional payments if edocs hits certain milestones).

No doubt, Siebel needs a makeover. In the 1990s the company pioneered the market for customer relationship management (CRM) software solutions. However, Siebel now looks like a technology dinosaur compared with its fierce competitors, such as Salesforce.com (NYSE: CRM) and RightNowTechnologies (Nasdaq: RNOW).

edocs is a leader in eBilling and customer self-service software solutions -- collectively a $3 billion market that's been growing about 8% per year. The company allows companies to improve the quality of customer care, reduce costs, and build deeper customer relations. Customer service goes from expensive paper-based and call center channels to self-service approaches through the Internet and email. Customers include British Telecom, GE (NYSE: GE), and VerizonWireless (NYSE: VZ).

The deal comes at a cost for Siebel. It will mean a $0.01 drop in earnings per share in the first quarter of 2005.

All in all, edocs is a smart fit for Siebel. Unfortunately, it's more of a gradual empire expansion at a time when the company needs -- and investors want -- a rapid-growth injection. In the end, Ellison's suggestion to PeopleSoft (Nasdaq: PSFT) may extend to Siebel as well: The way to make shareholders happy is not by cutting small deals but by selling out.

Fool contributor Tom Taulli does not own shares in the companies mentioned in the article.