Beginning in late 2004 with its acquisition of PeopleSoft, Oracle initiated an acquisition campaign that has brought over forty companies into the Oracle fold. During that time, Oracle has made five multi-billion dollar acquisitions – about one per year – all of which have made for big news in the ERP software market.

But which company will be next? I would argue that there is a logical way to analyze Oracle’s recent decisions and define a set of strategies that have not only guided past acquisitions but may also tell us where Oracle is headed. Below is a chart that displays the size of each acquisition Oracle has made in the past five years as well as the layer of the technology stack into which that acquisition would be placed.

Based on this data, I would argue that the motivations behind Oracle’s major acquisitions are:

• Grow market share leadership in key enterprise markets;
• Expand profitability by consolidating high-margin support revenue; and,
• Increase strategic relevance by offering a complete technology stack.

Each of Oracle’s five blockbuster deals met these requirements. Peoplesoft, Siebel and Hyperion all bolstered Oracle’s market share position in the applications market while contributing captive customer bases that pay highly profitable support fees. BEA Systems was particularly strategic given its leadership in the middleware market – an increasingly critical part of the Oracle strategy given the need to integrate so many applications. Finally, Sun Microsystems brought recurring support revenue but was most interesting because it demonstrated Oracle’s willingness to move into a major new layer of the stack – servers and storage (including hardware).

With these requirements in mind, we can begin to consider what Oracle’s next move will be. However, it is important to establish a framework that keeps our ideas from getting too radical. Toward that end, I’ve identified the following five target criteria that I think Oracle will stick to in any blockbuster deal:

• A large customer base with substantial recurring support revenue;
• A leadership position in an enterprise technology market;
• Relevance to Oracle’s integrated technology stack strategy;
• An accretive pro forma combination, assuming cost synergies; and,
• A valuation that represents up to 20% of Oracle’s valuation, no more.

Among the companies that meet these requirements and should be taken into consideration are:

• Teradata. This data warehousing and business intelligence (BI) play would check a lot of boxes, augmenting Oracle’s strength in databases and BI. Moreover, Teradata brings strength in key verticals. At 21x P/E, the price might work.
• Sungard. This very large applications vendor and its various business units bring leadership positions in a range of vertical markets. The company was taken private a few years ago by savvy private equity investors, so an exit event is likely just over the horizon. However, Sungard brings a large services organization that might not be Oracle’s thing.
• F5 Networks. If Oracle wants to strengthen its application delivery and data center story, F5 would be an interesting step. The company’s application delivery and networking systems would provide a growth vehicle in the networking layer.
• Allscripts. The healthcare market is hot as providers adopt electronic health records (EHRs) to meet government requirements. Allscripts is the biggest player in the EHR market and is a consolidator itself. Its recent move to acquire Eclipsys, as well as its rich valuation, might take Allscripts off the table.

To see the full list of fourteen potential targets I have suggested, as well as participate in our “Which company will Oracle acquire next?” poll, be sure to visit the full article here.

Related posts:

1. What does the Oracle-Sun news mean for enterprise CTOs?
2. Oracle, Sun and the Enterprise CTO
3. Larry Ellison on the Sun-Oracle Close, January 27, 2010