Oracle RightNow Acquisition Secures Place in the Cloud, $40 Stock Value

Oracle Corp. (NASDAQ:ORCL) announced its purchase of RightNow Technologies, Inc. (NASDAQ:RNOW) for $43/share or $1.5 billion net of cash and debt late last month. The purchase price reflects a 20% premium over RNOW’s stock price at the close of market on 21 October 2011. Oracle purchased RNOW to get a better footing in the cloud-based information technology marketplace where it competes with other firms like SalesForce.com (NYSE:CRM). Oracle also competes against enterprise software makers like SAP (NYSE:SAP) and Microsoft (NASDAQ:MSFT) in the enterprise market.

RightNow is a leading provider of cloud-based customer service and offers a full range of Cloud Solutions that include: sales force automation, HR, talent management, social networking, databases and Java. Given that Oracle owns Java, it should be able to substantially expand RNOW’s product offerings after the acquisition is complete. Furthermore, Oracle will be able to make more resources than were previously available to RNOW, which should add to RNOW’s organic growth over time.

CRM is a part of the Application Software business that accounts for around 23% of Oracle’s $40 Trefis price estimate, which stands nearly 20% above its current market price.

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While Oracle’s revenues have historically comprised licenses for database, applications and middleware software licenses (that are often deployed on the customers’ local servers); cloud computing is quickly becoming the preferred way for businesses to access these same products/services over the web, at a lower cost, versus costly in-house systems.

Oracle’s interest in cloud computing further validates the importance of the Software-as-a-Service (SaaS) industry. SaaS is largely seen as a disruptive technology and many companies are betting it will become industry standard in the coming years. Currently, SalesForce.com is arguably the leading SaaS provider for businesses. However, Oracle’s acquisition of RightNow sends a strong signal that it intends to compete head on with SalesForce in this market.

When the acquisition is complete, Oracle will be better positioned in the emerging cloud-based marketplace. Adapting to market needs quickly through selective acquisitions bodes well for the company’s long-term growth opportunities. Shares of Oracle’s stock rose over 2.5% after the deal was announced (outpacing the overall movement of the S&P 500 index), signaling investor approval. Expect to see more merger and acquisition activity in the IT industry as larger companies compete for market share in the growing cloud-based SaaS industry. Though this deal, Oracle is expanding its product line and becomes better able to both attract new and retain existing customers who demand cloud-based SaaS offerings. Expect to see Oracle’s stock price grow accordingly.

See here for a more detailed breakdown of Oracle’s share price.

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