News Analysis: Oracle BEA Amicably Agree On a $8.5B Deal

Oracle raises the ante $1.8B more from the $6.7B initial offer for BEA. It appears a combination of activist shareholder sentiment and cooler heads at both Oracle and BEA led to this amicable resolution. This is an update to the original post on October 12, 2007. The deal remains strategic for Oracle for the following reasons:

• Oracle seeks to dominate middleware. Middleware platforms provide the nexus for software ecosystems. Each vendor's last mile solutions depend on a strong middleware tool and a community of individuals and solutions providers who build and extend the platform for vendors. Whoever owns the future platform, an applistructure on middleware or a SaaS platform like SalesForce will emerge as winners in the post internet era. Acquisition also marginalizes SAP NetWeaver's role as a standalone middleware solution and puts Oracle in direct competition with IBM.
• BEA's customer base remains attractive to Oracle's vertical ambitions. BEA brings high end custom dev clients to the table. With a blue chip base of the best internal IT shops, those in telecom, financial services, and public sector, Oracle or any acquirer could cement its leadership in middleware over IBM, MSFT, and SAP. These custom development shops represent the best and brightest user base and the most lucrative.
• Leverage development in China. From development teams to business alliances, the BEA team has made significant inroads in the China market. Oracle sees this as a great opportunity to bolster its China investment strategy and build lower cost development capacity just like the work it did in India.
• Oracle should expect a fight for BEA but the competition seems to be off guard. Oracle's potential acquisition takes away the last remaining independent major middleware platform provider leaving future competitors without a large install base and a third party supplier. Other vendors like SAP, IBM, and HP need BEA more than Oracle does. SAP's NetWeaver is among the weakest of the 5 major middleware platforms, despite one of the strongest ecosystems. IBM will be threatened by an Oracle dominance in middleware and continued challenge of commoditizing vertical service offerings into software solutions. HP could use this as an entry point to gain traction in the market. SI's who've built a long term strategy around BEA as an independent platform may seek to counter with an acquisition of BEA.
  

The bottom line
Oracle's long term M&A strategy centers on gaining the biggest install base around not only mission critical applications, but also middleware. At the end of the day, its also about selling more database and gaining the largest share of the IT wallet. We expect accelerated consolidation along key battle grounds of middleware platforms such as MDM, BI, Portals, BPM, and other Information Management tools. Don't expect the competitors of Oracle to sit still!

In a normal market, Oracle would expect a fight for BEA but the competition seems to be off guard. Oracle's potential acquisition takes away the last remaining independent major middleware platform provider leaving future competitors without a large install base and a third party supplier. Other vendors like SAP, IBM, and HP need BEA more than Oracle does. SAP's NetWeaver is among the weakest of the 5 major middleware platforms, despite one of the strongest ecosystems. IBM will be threatened by an Oracle dominance in middleware and continued challenge of commoditizing vertical service offerings into software solutions. HP could use this as an entry point to gain traction in the market. SI's who've built a long term strategy around BEA as an independent platform may seek to counter with an acquisition of BEA.

For BEA customers:

• Seek clarification from Oracle about BEA's future roadmap. As Oracle meets with key customers, now's the time to seek clarity of what BEA's role will be in a world of 2 middleware platforms.
• Lock in maintenance agreements now. Call up your sales rep right away if you are paying less than 22% maintenance. You'll want to sign a long term agreement and lock in your current contract conditions, should they be more favorable than Oracle's.
• Expect Oracle to acquire more vendors with BEA backbones. The acquisition opens the door for Oracle to integrate companies with solutions built on BEA. Many of these vendors play in mission critical business apps that service the high end of finance, telecom, insurance, public sector, utility, and
  

For Oracle customers:

• Understand how the BEA product will weave its way into Oracle's Middleware Strategy. Seek clarification on the attributes within BEA that could become common across Oracle applications. PeopleSoft customers may want to find out if they can remain on BEA for middleware or if BEA will only be applied to future acquired verticals. The BEA platform reaches out to more non-Oracle shops and provides a truly open platform for integration with less lock in at the meta data and process levels. As Oracle makes more acquisition of mission critical vertical apps vendors, expect the BEA angle to play a critical role in creating a smoother transition.
• Consider consolidating middleware strategies. Customer with both BEA and Oracle may want to consider a long term consolidation strategy. Long term costs could be lowered through the reduction of redundant licenses.

(The personal contents in this blog do not reflect the opinions, ideas, thoughts, points of view, and any other potential attribution of my current, past, or future employers.)
Copyrighted 2008 by R Wang. All rights reserved