IT sector giant Oracle (ORCL -4.64%) is closing out its 2017 with a fresh acquisition. The company recently announced that it signed a deal to buy Australia's Aconex, a developer of team-collaboration, cloud-based software platforms for the construction industry. Oracle will pay 7.80 Australian dollars per share in cash for Aconex, which is 47% above the company's closing stock price on the trading day before the buyout was made public.
All told, the deal is valued at roughly $1.2 billion, net of Aconex's cash. That's a sizable chunk of change, even for a company with an Oracle-sized budget. It looks like it might just be worth the money, though.
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A cloudy future
In a press release heralding its buy, Oracle wrote that "[t]ogether, Oracle and Aconex will provide an end-to-end offering for project management and delivery that enables customers to effectively plan, build, and operate construction projects."
The company didn't hesitate to point out that its "Oracle Construction and Engineering Cloud already offers customers the industry's most advanced solutions for planning, scheduling and delivering large-scale projects."
If any of this sounds familiar to Oracle watchers, it should. In mid-2016, the company made a $663 million acquisition in the construction segment by purchasing Textura, a developer of cloud-based payment and contract management solutions for the industry. Oracle combined Textura with its existing construction assets to form Construction and Engineering Cloud.
There is potentially much to gain by building economies of scale in the segment. In a presentation on the Aconex deal, Oracle quotes several dizzying numbers that promise a bright future. The global construction industry is estimated to be worth $14 trillion, and the volume of construction output is set to grow by 85% between 2015 and 2030.
Oracle, of course, isn't the only company that sees an opportunity here. There are many enterprises hawking cloud-based construction management solutions. The list of such providers is long and stuffed with both ambitious early stage companies and the occasional veteran IT player.
Aconex, as it happens, is a favorite in the industry. It often makes it onto the "best of" lists on sites that rank construction management software. Considering that there are hundreds of solutions on the market, that's saying something.
Aconex's revenue has been on a sharp upward trajectory, climbing steeply from A$66 million ($51 million) in fiscal 2014 to A$161 million ($123 million) for 2017. It's been profitable, although not to a great degree, over the past few years.
So Aconex looks like a worthwhile asset for Oracle's expanding construction portfolio. Is it worth $1.2 billion? Yes, assuming the new owner can integrate it more or less smoothly within Construction and Engineering cloud. And, of course, build some economies of scale that will help it carve out more share in the busy construction cloud solutions segment.
The details
The Oracle/Arconex deal is subject to regulatory approval from the relevant authorities, and Oracle anticipates that it will close at some point in the first half of 2018.
The American company did not specify how it would fund the purchase. As of the end of November, the notably cash-rich Oracle had just over $21.3 billion of cash on its books.
