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5 Cloud Names That Could Be Part of M&A Wave

Stocks in this article: SAPSFSFCTXSTLEOCSODIBMMSFTN

NEW YORK ( TheStreet) -- Cloud computing is shaping the information technology sector in a very drastic way, and companies are willing to pay dearly for the growth in this area.

SAP (SAP) signaled that it wanted to expand its offerings in this space, by acquiring SuccessFactors (SFSF) at $40 a share, a significant premium to the stock's closing price on Friday.

A resurgence in M&A in cloud computing could lead to additional deals.

SuccessFactor's board already has approved the transaction, and it will be funded by existing cash on hand and a €1 billion term loan facility. Both companies expect the transaction to close in the first quarter of 2012, and it is expected to be slightly dilutive to SAP's 2012 earnings. It will be accretive in subsequent years.

SAP has recognized that it needs additional exposure to its cloud computing offerings, and management believes adding the fast growing SuccessFactors is a solid choice.

SuccessFactors is growing exceptionally fast, with revenue rising 77% year over year in the third quarter of 2011, and 59% in the first nine months of the year.

SuccessFactors has one of the largest scale of paying users, with more than 15 million subscription seats. It also has more than 3,500 customers in 168 countries.

With such a heavy premium being paid for SuccessFactors, SAP sees the potential for cloud computing, particularly through its core applications and analytics offerings. Bill McDermott, co-CEO of SAP, believes the two companies " w ill create tremendous business value for customers, with potent synergies to accelerate our growth in the cloud."

Deutsche Bank believes there may be a wave of mergers and acquisitions in the space, as the SAP deal and the Oracle (ORCL) deal to buy RightNow Technologies (RNOW) could signal "a sign that large companies are feeling confident about current macro conditions and are willing to put cash to use in acquisitions."

With such a large premium being paid for SuccessFactors, it brings renewed interest in the space. Acquisitions in certain sectors tend to happen in bunches, as executive teams see the need to compete with rivals. Microsoft (SAP) IBM (IBM) and other large technology companies have made it a priority to continue growing cloud computing revenue. Specifically, IBM (IBM) has said that it wants to have $7 billion worth of revenue from cloud computing by 2015.

Here is a list of five names to consider that might be part of the cloud M&A wave.

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