It's "merger Monday" (again!), yet U.S stocks are little changed this morning, with the benchmark S&P 500 and the narrower Dow Jones Industrial Average (DJINDICES:^DJI) down 0.05% and 0.15%, respectively, at 10:15 a.m. EDT. The health-care sector has been remarkably active this year when it comes to mergers and acquisitions, but it's the technology sector's turn to grab the headlines today: Oracle (NYSE:ORCL) announced this morning that it is acquiring MICROS Systems (UNKNOWN:MCRS.DL) for $68 per share in a transaction valued at $5.3 billion – one of the largest technology acquisitions so far in 2014.
This is Oracle's largest acquisition since it bought Sun Microsystems for $7.4 billion in 2010. That's a particularly meaningful statistic in the case of Oracle, which is a serial acquirer of companies.
The rationale for the deal is not hard to discern: growth. The database and software mastodon has come under pressure from Wall Street due to subpar growth. On Friday, shares of Oracle fell 4% after it announced disappointing results for its fiscal fourth quarter ended on May 31. Revenue rose just 3% year over year to $11.3 billion (for reference this is less than the rate of growth of the entire U.S. economy), nearly $200 million short of analysts' consensus estimate. Oracle also missed on profit, with adjusted EPS of $0.92 where analysts had been looking for $0.95.
With over $37 billion in net cash on its balance sheet, acquisitions are an obvious answer to Oracle's growth conundrum. Analysts were expecting MICROS to grow its EPS at 18% per annum over the next five years, nearly twice the equivalent 9.4% forecast for Oracle.
MICROS sells Internet-connected cash registers, as well as the software they run on, to retail outlets, restaurants, and casinos -- over 330,000 sites worldwide. The franchise represents an opportunity for Oracle to expand its footstep in the retail and hospitality markets.
Although the agreed price of $68 per share is less than a 4% premium to MICROS' closing price on Friday, it represents an 18% premium to the "undisturbed" closing price on June 16 (the next day, Bloomberg reported that the two companies were nearing a deal).
Furthermore, Oracle doesn't appear to be getting MICROS Systems on the cheap: As of Friday's close, MICROS' shares were valued at 23 times estimated EPS for the fiscal year ending June 20, 2015 (at more than 16, the enterprise value-to-EBITDA multiple also suggests the stock is at least fully valued). The deal looks a bit expensive, but, given that Oracle expects it to be immediately accretive to adjusted earnings per share, it's the sort of transaction that Wall Street ought to appreciate.
Alex Dumortier, CFA has no position in any stocks mentioned. 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.