After Thursday's deal, some analysts continue to anticipate deals, even if premiums drop. "Expect SaaS M&A could continue," writes UBS analyst Brent Thil in a note. He sees
may become the target of a larger technology player or even a non-technology business solutions specialist.
"The recent M&A activity in the Cloud/SaaS sector is being driven by a seismic shift to cloud computing, in our opinion. We are roughly 10 years into this shift, which should last another 10-20 years," writes Jeffrey Houston of Barrington Research in a Jan. 23 note on the sector. He recommends
(SPSC - Get Report)
(RP - Get Report)
as attractively priced.
Meanwhile, a wide array of specialist cloud-based H.R. service providers will also help to push Oracle's second acquisition through, signaling that consolidation doesn't create antitrust issues. "Given the many other competitors in the HR market, including SAP, Workday, Kenexa, etc., we do not expect any regulatory hurdles to getting this deal done," writes Jayson Maynard of Wells Fargo in a Thursday note. He believes the deal is consistent with Oracle's strategy, filling a "much needed product gap."
However, with a big recent share rally and competition racheting up, investors should now temper their expectations on M&A premiums.
In fact, that may have been the case in December when Taleo rallied on takeover speculation. "While the SaaS stocks may get a near-term boost from the SAP news, analysts should also be questioning whether the consolidation activity is a sign of a top," wrote Keirstead of BMO Capital Markets in his Dec. 5 note.
For SuccessFactors and its 52% premium takeout, Keirstead concluded that it may have represented a peak as a result of increasing industry competition. Watch for premiums to fall if investors continue to bid up sector shares on takeover speculation, valuations fall and others sell out of the competitive cloud services market.
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Written by Antoine Gara in New York