Oracle’s $5.3 billion deal for Micros Systems provides an uncertain forecast for shareholders in the database giant. Even if it’s the start of a new deal binge by Oracle’s chief, Lawrence J. Ellison, it’s not at a crazy valuation. But Mircos, a longtime partner, is more of an add-on than a way to supercharge Oracle’s effort in cloud computing.
Oracle is paying $68 a share in cash for the Micros, a maker of hotel and restaurant business technology systems. At a 24 percent premium to the undisturbed share price, it’s at about half the premium Priceline recently agreed to pay for the restaurant reservations site OpenTable, as one example.
The deal, Oracle’s biggest since its 2010 purchase of Sun Microsystems, values Micros at about 26 times forecast earnings for fiscal year 2015. That’s no rock-bottom price, but it’s also hardly egregious considering bubbly multiples elsewhere in tech land. Demandware, a cloud-based e-commerce competitor, for instance, trades on 1,400 times expected earnings.
The acquisition also makes some strategic sense. Micros has worked with Oracle developing its products for more than 15 years. Bringing the company in-house will broaden Oracle’s software presence in the hospitality market and should also bolster its business selling technology systems to retailers.
However, it doesn’t look as though Micros will do that much to shift Oracle into cloud computing, where younger, nimbler competitors are challenging its core enterprise software business. Micros has a software-as-a-service offering, but it still gets the vast majority of its revenue from sales of less sexy hardware and services.
The relatively restrained price tag may come as a relief to some investors, helping to explain why Oracle’s shares rose slightly on news of the deal.
But Micros doesn’t really address Oracle’s cloud challenge. Software-as-a-service specialists such as NetSuite and Splunk trade on triple and even quadruple-digit price-to-earnings ratios. Aiming more directly for the cloud could force Oracle to pay sky-high prices, too.