NetSuite Inc (NYSE:N) is soaring this morning as Oracle Corporation (NASDAQ:ORCL) has made a bid to buy the company for $9.3 billion. This deal has been rumored for some time but obviously few expected such a large premium or did not think the bid was certaintly coming as the stock is up about 18 percent at the time of this writing which is a lot for a tech giant. Here is what the sell side is saying.
NetSuite – analysts react
Should the transaction take place, Oracle would pay about 9x NTM EV / revenue (based on consensus estimates for NetSuite), above the average multiple paid in our precedent SaaS Software acquisitions analysis of 6.8x . Additionally, Oracle is paying a one-day premium of 19%, below the historical average of 34%. That said, this represents a 58% 30-day premium, which is actually above the average of precedent SaaS deals of 46%, as the stock has moved up over the past 30 days, including a 9% positive move on the day prior to the deal’s announcement.
Bottom line: For Oracle, we like this deal on a number of fronts: 1) it continues to help shift more of the business mix towards applications – with SaaS/PaaS representing ~16% of total revenue in FY18 when including NetSuite; 2) we believe it strengthens Oracle’s position in the mid-market; 3) we believe Zach Nelson will be a positive addition to the Oracle mgmt. team; and 4) while expensive on an EV/sales basis (7.6x), the deal will be accretive on a non-GAAP EPS basis in the first fiscal year after closing.
ORCL aware of potential conflicts of interest: Given Ellison’s ownership of N (~40%), the evaluation and negotiation of the transaction was led by a Special Committee of Oracle’s board, which unanimously approved the transaction on behalf of Oracle and its board. In addition, the closing is subject to a condition that a majority of NetSuite’s outstanding shares not owned by executive officers or directors of NetSuite, or persons affiliated with Larry Ellison be tendered in the tender offer.
More from the press release below
Oracle (NYSE: ORCL) today announced that it has entered into a definitive agreement to acquire NetSuite (NYSE: N), the very first cloud company. The transaction is valued at $109.00 per share in cash, or approximately $9.3 billion.
“Oracle and NetSuite cloud applications are complementary, and will coexist in the marketplace forever,” said Mark Hurd, Chief Executive Officer, Oracle. “We intend to invest heavily in both products—engineering and distribution.”
“We expect this acquisition to be immediately accretive to Oracle’s earnings on a non-GAAP basis in the first full fiscal year after closing,” said Safra Catz, Chief Executive Officer, Oracle.
“NetSuite has been working for 18 years to develop a single system for running a business in the cloud,” said Evan Goldberg, Founder, Chief Technology Officer and Chairman, NetSuite. “This combination is a winner for NetSuite’s customers, employees and partners.”
“NetSuite will benefit from Oracle’s global scale and reach to accelerate the availability of our cloud solutions in more industries and more countries,” said Zach Nelson, Chief Executive Officer, NetSuite. “We are excited to join Oracle and accelerate our pace of innovation.”
The evaluation and negotiation of the transaction was led by a Special Committee of Oracle’s Board of Directors consisting solely of independent directors. The Special Committee unanimously approved the transaction on behalf of Oracle and its Board of Directors.
The transaction is expected to close in 2016. The closing of the transaction is subject to receiving certain regulatory approvals and satisfying other closing conditions including NetSuite stockholders tendering a majority of NetSuite’s outstanding shares in the tender offer. In addition, the closing is subject to a condition that a majority of NetSuite’s outstanding shares not owned by executive officers or directors of NetSuite, or persons affiliated with Larry Ellison, his family members and any affiliated entities, be tendered in the tender offer.
More information about this announcement is available at www.oracle.com/netsuite.