A war for cloud software may be beginning.
Oracle (ORCL) - Get Report announced Thursday that it has agreed to buy NetSuite (N) for $9.3 billion, or $109 per share, in cash. The evaluation and negotiation of the deal was led by a special committee of Oracle's board of directors.
Shares of NetSuite rallied about 18% Thursday afternoon to $108.20, while Oracle was down slightly to $40.88 a share.
For Redwood City, Calif.-based Oracle, the buyout of NetSuite represents its biggest transaction in over a decade and once again highlights its ambition for cloud software.
The potential tie-up between Oracle and NetSuite had been rumored in the market for years. The acquisition makes strategic sense for the buyer, which had been wanting to expand its footprint in enterprise resource planning, or ERP, explained Piper Jaffary analyst Alex Zukin via phone.
NetSuite is an obvious way for Oracle to reach its goal of pulling in $10 billion in cloud software revenue, he added. (Salesforce.com (CRM) - Get Report has publicly talked about the same goal for years.)
Zukin further said the NetSuite takeout could also spell positive news for other ERP players like Workday (WDAY) - Get Report and Zendesk (ZEN) - Get Report . Workday is up 3% to $83.7 while Zendesk is also up 3.5% to $29.02.
On the buyer side, the $9.3 billion check Oracle is putting on the table for NetSuite could change the software chess board. SAP (SAP) - Get Report , for instance, has been largely silent as its peers Oracle and Salesforce.com have actively pursued dealmaking and may now feel even more pressure to make a move.
The transaction represents a premium of about 26% and a multiple of approximately 9.2 times enterprise value to sales, SunTrust analyst John Rizzuto wrote in a note. The price tag is on the high end of what cloud-based companies have fetched in recent transactions.
"The transaction will help Oracle move towards its aspiration of becoming the largest cloud software vendor," he noted.
Still, the acquisition may do "little to change the market landscape, the effectiveness or growth trajectory of either organization," Rizzuto warned. He wonders whether synergies could be limited and argued that Oracle may be better suited spending cash in other areas, he added.
Meanwhile, NetSuite is the latest software maker to be taken out.
Cloud software makers have been busily pursuing M&A in the backdrop of increasing demand for cloud and a market dip in February that lowered valuations for takeout targets.