Oracle BEArs Down

With a $6.66 billion (numerologists take note) unsolicited, all-cash bid for BEA Systems, Oracle further cements their role as the new Computer Associates, i.e. the ecosystem scavenger.  BEA seems to have accepted they’re in the endgame, quibbling only about valuation and not their independence.  Quick thoughts:

  1. The acquisition suggests Oracle’s Fusion middleware may not be quite the juggernaut the company has claimed it to be.  Oracle seems to have dropped any pretense of rationalizing their acquisitions, and are content to milk the maintenance revenue, cross-sell whatever they can and make parallel albeit shallow R&D investments in each codebase.  But the side effect of maintaining all those silos is they are making the integration mess even worse.  Now that is a business opportunity for Oracle middleware, but customers are not going to appreciate the Oracle cross-sell requiring higher cost and integration complexity.
  2. Another big acquisition means more churn for Oracle’s financials, further postponing judgment day on the financial outcome of their acquisition binge.  No doubt this transaction will be timed like other deals to start adding to Oracle’s year-to-year comparisons just as other deals have contributed a full four quarters of apparent growth.  The question is about their organic growth.
  3. I doubt any other bidders emerge.  Speculation has centered on HP and SAP.  HP is plausibly interested but I don’t see them getting into a bidding war for the likes of BEA.  SAP still believes in architectural coherence so hard to see them getting into the fray.  Maybe there is another bidder with a similar financially-driven roll-up strategy to Oracle (e.g. Infor) or a private equity company trying to find something to do with all their cash.
  4. There are a couple key things to understand about BEA.  It derives most of its revenue from a very small number of customers (around 100) so they don’t provide any scale in terms of customers or technology.  The majority of their revenue is from consulting services, not software (shades of IBM’s acquisition strategy).  And the legacy Tuxedo business is stronger of late than the newer WebLogic and AquaLogic products.
  5. Given BEA hasn’t actually filed financials with the SEC for multiple quarters (due to stock option backdating), I am sure Oracle will insist upon some serious due diligence.