Oracle said Thursday that it was acquiring Taleo, an on-demand talent management software company, for $1.9 billion.
That price works out to $46 a share. Taleo closed at $38.94 on Wednesday.
Taleo is a competitor to SuccessFactors, which happened to be acquired by Oracle rival SAP. With the Taleo acquisition, Oracle has bolstered its cloud HR apps. Both SAP and Oracle appear to be setting up for a broader showdown with Workday, an fast-growing outfit set to go public in 2012.
Oracle said in a statement that Taleo will allow it a cloud stack to manage HR and careers. Taleo's board approved the deal, which is expected to close in the middle of the year.
Taleo has 1,400 employees and 5,000 enterprises using its software.
Here's how Oracle views Taleo in context of its broader cloud operations.
Oracle's move to buy Taleo isn't all that surprising. As soon as SAP bought SuccessFactors and Oracle acquired RightNow, the shopping lists were formed. Simply put, software giants are looking to cloudify their operations. They can't be sitting ducks to the likes of SaaS players like Salesforce.com, NetSuite and Workday.
The other looming issue for Oracle is that there's a swell of PeopleSoft customers looking for upgrades. Workday has actively targeted PeopleSoft customers as has Taleo. By acquiring Taleo, Oracle is able to offer these potentially wayward PeopleSoft accounts a SaaS option. In many respects, Oracle's purchase of Taleo is all about the cross sell.
Peter Goldmacher, an analyst at Cowen & Co., called Oracle's move to buy Taleo defensive. Goldmacher said:
We view this deal as an indictment against Oracle's Fusion Apps and an indication of how concerned Oracle is about losing business and maintenance streams to emerging SaaS HR juggernaut Workday. While the purchase price was more reasonable than the 8x revenues SAP paid for SuccessFactors, it is still considerably more than Oracle has historically paid for its acquisitions, further reinforcing our belief that this is a defensive move. This acquisition comes quickly on the heels of the RightNow acquisition, another defensive acquisition meant to slow down another encroaching SaaS provider, Salesforce.com.
Meanwhile, HR is becoming critical to next-gen ERP systems. As the economy is increasingly dominated by services companies HR matters. Even Salesforce.com is in on the act. The company recently made an HR splash and bought Rypple
Ovum analyst Tim Jennings said:
These acquisitions indicate the increasing enterprise acceptance of the Software-as-a-Service (Saas) model, with HCM following in the footsteps of Customer Relationship Management (CRM) as the next SaaS battleground. It also emphasizes the urgency that the major enterprise application vendors attach to establishing a strong position in cloud-based software. Both Oracle and SAP have existing on-premise HCM solutions, but both have been prepared to pay out large sums on cloud-based equivalents, rather than simply transitioning their existing solutions to the cloud.