When software database king Oracle (Nasdaq: ORCL ) announced on Monday that it would invest another $125 million to boost its 52.5% stake in Indian software and services firm i-flex, few among the major U.S. media took the time to explain the nuances of the deal. I'm writing today to fill the void.
I think it's important to do so, for the i-flex relationship offers insight into how Oracle is succeeding with acquisitions and third-party relationships, and how that, in turn, has allowed it to gain ground in its war with SAP (Nasdaq: SAP ) .
Let's begin with the particulars: i-flex (whose software serves 575 banks, including majors such as Citigroup (NYSE: C ) , UBS (NYSE: UBS ) , and Deutsche BankAG (NYSE: DB ) ) has agreed to purchase U.S.-based Mantas for $122.6 million. Like i-flex, Mantas operates exclusively in the financial services industry, and its security products should bolster i-flex's already impressive portfolio. Oracle's enhanced equity stake (which also includes an open offer to purchase a further 20% of the outstanding shares of i-flex) will fund the merger.
Why does any of this matter? Glad you asked. Recently, AMR Research reported that Oracle has made impressive gains in two sectors of the software applications market: human capital management (or HCM ... think human resources) and customer relationship management (CRM). The HCM findings, while not surprising given Oracle's 2004 buyout of PeopleSoft, are most telling: OracleSoft managed to grow total HCM revenues by nearly 18% after the deal closed and, as a result, earned the top spot in the segment in terms of market share, according to AMR.
In other words: Oracle has kept the customers it spent $19 billion to acquire while winning ever more business. That could be because it's mostly purchasing and supporting specialists. Think about the list: PeopleSoft (HR), Siebel (CRM), Retek (retail), and, now, i-flex in finance. Contrast that with less-acquisitive SAP, which makes a business out of selling big chunks of software to the same customer. Oracle does the same, of course, but has the luxury of selling thinner slices of applications software, thanks to its core database business.
Frankly, there's no telling whether Oracle CEO Larry Ellison will be able to continue to buy his way to success, but I love his strategy. Using acquisitions, he's found a way to whet the appetites of IT managers who desire software specialization but fear the relative financial weakness of smaller firms. Don't be surprised if Ellison remains hungry for a little longer.
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