Oracle: Consolidation Catalyst?

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businessweek.com/research/stocks/snapshot/snapshot.asp?symbol=GE'>GE), Merrill Lynch (MER), and Greylock Partners, is "ripe for acquisition," says Brian Farrar, a managing director at Innovation Advisors, a Chicago investment bank that advises technology companies on mergers and acquisitions. Farrar pegs data analysis as one of the richest areas for IT spending in the next five or six years. Having gorged on enterprise resource planning systems in the 1990s, chief information officers "need to squeeze more decision-making power out of the infrastructure they already have," he says.

Overall, the market for data-analysis software was worth nearly $23 billion in 2006, according to AMR—about half the size of the business applications market, which has boomed over the past two decades. Subsets of the category are growing fast: Sales of business-intelligence software grew 10% to $6.35 billion, and sales of "scorecard" software that helps busy executives glance at key numbers shot up 26% to $5.2 billion. Another growth area: analysis of "unstructured data" such as insurance claims or transportation schedules that don't reside in traditional databases (see BusinessWeek.com, 5/15/06, "Business Intelligence Gets Smarter").

Strategic Choice

Plucking Hyperion helps Oracle pressure SAP in several ways, says Richardson. For starters, about 55% of Hyperion customers also use SAP, he estimates. And business-intelligence software can "burrow deeper" into a company once it's installed, as users demand more data—and pony up for additional licenses.

The formula added up for Oracle. "Thousands of SAP customers close their books with the Hyperion product," Oracle President Charles Phillips said during a conference call with analysts on Mar. 1.

Oracle said it will pay $52 a share, about 21% higher than Hyperion's Feb. 28 closing price. Shares of Hyperion closed Mar. 1 up $8.73 at $51.57. Shares of Oracle closed 34¢ higher, at $16.77. The deal is due to close in April.

Oracle's acquisition binge the past few years has included PeopleSoft for $10.3 billion in 2004 and Siebel Systems for $5.9 billion in 2006. Oracle bought I-flex Solutions of India for $909 million in 2005, and in November added a pair of software companies, Stellant and SPL WorldGroup.

Kash Rangan, a research analyst at Merrill Lynch, said in a Mar. 1 research note that it's unlikely Oracle will choke on integrating yet another company judging from its track record. And the deal should give Oracle a boost in applications revenue as it faces tough financial comparisons with historic performance, he said. Sales of applications licenses during Oracle's second quarter ended Nov. 30 grew 28%, but fell short of Wall Street expectations. Oracle executives weren't available for comment, a spokeswoman said.

Other Big Fish

What could cause problems are new competitors. In addition to hardware vendors hoping to add analytics to their portfolios, Microsoft has been getting more aggressive in the market and undercutting competitors on price. Microsoft bought business-intelligence vendor ProClarity last year; it's preparing to release a new product called PerformancePoint Server this year that could make analysis of financial and operational data accessible to more users of its ubiquitous Office suite.

Even Google (GOOG) is dipping its toe into the data-analysis market. The latest version of its Search Appliance server includes software called OneBox that gives users access to data from business-intelligence systems from Cognos and others by typing keywords into the Google search bar.

And the pond may not be completely fished out. While the core market for analytics software is saturated, there are opportunities for small companies that can supply niche applications, such as those helping companies understand the return on their marketing and advertising spending, says Robert Ketterson, a managing partner at Fidelity Ventures. "I don't think business intelligence is dead," he says. "There's always an opportunity for venture [capital] in a space where consolidation wipes the bigger players from the map."

Ricadela is a writer for BusinessWeek in Silicon Valley.