Oracle closes NetSuite deal: Can it expand into midmarket, small enterprise?
Oracle on Monday will close its $9.3 billion purchase of NetSuite and expand its cloud footprint and total addressable market into smaller companies in a hurry.
The enterprise software giant on Saturday said it tendered enough shares to close the NetSuite purchase, which was announced in July. The close of the deal was dragged out largely due to the reluctance of T. Rowe Price to tender its shares. Oracle had to extend its tender to garner enough votes.
Oracle's issues with closing the deal will now be merely a footnote. For NetSuite, the closure of the deal is critical. The uncertainty around the Oracle deal meant it had to pull its outlook as customers paused to see what would happen.
Previously: NetSuite nixes 2016 revenue outlook amid Oracle takeover bid | Oracle says it'll walk from NetSuite deal if shareholders balk | Oracle acquires Netsuite in $9.3bn deal
So now what? Long term, Oracle will make the deal work well. In the short term, NetSuite may see some integration pain ahead.
In a research note, JMP Securities analyst Patrick Walravens highlighted the following:
- Oracle has reviewed the NetSuite sales opportunities;
- NetSuite and Oracle have gone through the pre-merger integration;
- But NetSuite has been hit with sales departures such as the senior vice president of sales Mike Arntz
Those items make it likely that the uncertainty NetSuite recently flagged will continue for a bit. Sales teams will be swapped. Oracle will add NetSuite to its cloud menu and chase smaller companies.
The success of the NetSuite purchase will largely rest on whether Oracle can keep midmarket and small enterprises and grow the addressable market.
Macquarie analyst Sarah Hindlian said in a research note:
NetSuite does offer a greater total addressable market (TAM) by allowing Oracle more smaller-sized businesses as customers, and it further accelerates Oracle's application software push into the cloud, even as the company is pivoting to move its second large software product into the cloud, databases. ERP is also one of the core focus areas Oracle is emphasizing for its cloud apps portfolio: CX (e.g., customer relationship management), ERP (Enterprise Resource Planning), and HCM (Human Capital Management). CX is dominated by Salesforce.com while HCM is dominated by Workday. Therefore Oracle does need to continue to emphasize ERP, which is the largest TAM of the three end markets.
Indeed, IDC pegs ERP to be a $54 billion market in 2016 followed by CRM at $32 billion and HCM at $12 billion.
The plan for Oracle is to take NetSuite's core customer base--small and midsized enterprises--and make them database and customers of other cloud tools. What remains to be seen is whether Oracle, which historically has catered to large companies, can move downstream effectively.