Technology giant Oracle is according to reports investigating the possibility of acquiring Accenture, in a deal that would be worth at least $80 billion and send a tidal wave through both the consulting and technology industries.
According to The Register, a UK based platform for the IT industry, the US technology giant has hired external consultants to explore the feasibility of buying Accenture. The dealmakers – the corporate finance and M&A consulting firms involved have not been disclosed – are further exploring the synergies that could be created if Oracle and Accenture would agree a merger. On top of the financial considerations, the due diligence process is also evaluating the potential cultural fit between the two giants. The consultants are however said to be at the start of the process, with findings to be presented back to Oracle’s executive team in the coming weeks.
If the deal goes ahead, it would dwarf Oracle previous acquisitions, which were considerable already. In 2005 the software firm bought PeopleSoft for around $10 billion, five years later it acquired Sun Microsystems in a $7.4 billion deal and, more recently, Oracle splashed out $9.3 billion on Netsuite. NYSE-listed Accenture currently has a market capitalisation of $77.5 billion, and shareholders will expect a premium offer for a firm which has seen strong growth in recent years. Accenture booked revenues of $32.9 billion in its 2016 fiscal year, generated by approximately 401,000 staff, up from just over 200,000 employees in 2010.
Cloud first strategy
The news, which was unveiled yesterday, raised eyebrows across the consulting and technology spectrum. Why would Oracle want to buy Accenture? One argument for the deal commonly cited by analysts since the news hit the stage is the synergies that could be achieved in the rapidly growing cloud space. According to Bain & Company, the cloud IT market will grow by 17% annually in the coming years, to a size of $390 billion in 2020, which means that cloud will by then account for about one-fifth of the global enterprise IT market. Through integrating Accenture’s management consulting, technology and outsourcing operations, analysts reckon Oracle could provide all the professional services needed to help its customers make the jump to the cloud, without relying on third parties. The move would enable Oracle to play serious catch-up against its larger rivals in the cloud space, such as Amazon, Microsoft, Google and IBM.
Accenture itself has been expanding rapidly in the cloud space, supported by an aggressive M&A strategy, slurping among others Cloud Sherpas for a reported $350 million to $400 million last year, and a range of smaller IT firms, including the likes of solid-serVision (Germany), Nashco Consulting (Canada) and CRMWaypoint (Benelux).
Another obvious argument supporting the rumour is the fact that the two are already strategic partners. The two firms launched a joint business group two years ago that helps customers migrate their IT infrastructure from on-premises into the cloud, with clients receiving an integrated suite of services, from IT strategy and design to implementation / data migration assistance, technology support and managed services.
Likely to happen?
The majority of analyst statements released to date however highlight that the deal is unlikely. Patrick Moorhead, a Principal Analyst at Moor Insights & Strategy: “It’s such a huge acquisition that it doesn’t seem likely to happen.” If Oracle would seriously consider pushing through, it would have to raise a serious amount of cash in order to finance an acquisition. In the company’s most recent earnings call, the company reported cash reserves of $68.4 billion, leaving a minimum gap of $10 billion that it would need to fill. Moorhead adds that the deal would not be looked upon so fondly by Oracle’s own shareholders as it would be “margin dilutive” (i.e. reduce the firm’s earnings per share).
Holger Mueller, a Principal Analyst at Constellation Research, says that the deal may lead to internal resistance within Oracle’s ranks, in particular among company veterans. In the 1990s, under the moniker that “Oracle knows Oracle best”, Oracle expanded its IT consulting arm very aggressively only for that strategy to blow up in its face. “When that happened the systems integrators recommended SAP instead, and that aided SAP’s rise to market leadership,” Mueller said. “I’d be surprised if Oracle repeated the same mistake of the old era.”
At the other side of the table, analysts question Accenture’s willingness to join a software house. Previous deals between consulting firms and IT giants generally face a poor track record, with A.T. Kearney’s spell under EDS bringing the firm on the brink of bankruptcy, while Arthur D. Little’s partnership with Altran or PwC’s Consulting time with IBM also ending up in drama.
Another delicate point would be Accenture’s loss of independence. The consultancy works as a systems integrator for the majority of Oracle’s rivals, such as IBM, SAP, Salesforce, Amazon and Microsoft, and if Accenture were to become part of Big Red’s operations then it would no doubt put significant strain on those relationships.
If the deal does happen, the acquisition could well be the technology industry’s most expensive yet, ahead of Dell’s $67 billion buyout of EMC Corporation last year, and way ahead of the number two and three on the top technology M&A deals of all time – JDS Uniphase’s pickup of SDL ($41.1 billion in 2010) and HP’s acquisition of Compaq ($31.8 billion in 2001).
Both Oracle and Accenture have refused to comment on the rumours.