Only an exclusive group of companies -- including Larry Ellison's Oracle (ORCL), which recently raised $10 billion in notes in addition to its roughly $45 billion in cash and securities, and Microsoft (MSFT), where CEO Satya Nadella oversees a $95 billion war chest -- would be capable of pulling it off.
A successful takeover would underscore the increased value of cloud services and the software-as-a-service business model, in which applications developers seek recurring payments rather than large license fees and regular charges for maintenance.
While private equity firms would have to sit out a contest for Salesforce.com, buyout shops are increasingly making their mark on enterprise software. The emergence of predictable SaaS revenue is part of the appeal. Private equity investors have also purchased mature software developers with legacy models that encountered hiccups, often after an activist investor put the company in play.
On one front, buyout firms such as Thoma Bravo, Vista Equity Partners and Bain Capital Partners have shown a taste for larger, infrastructure software companies such as Informatica (INFA), Tibco Software and Riverbed Technology that have slowing revenue growth but still produce cash. In some cases, enterprise software has seen a nexus of private equity and activist investment, with firms such as Paul Singer's Elliott Management prodding software developers to conduct reviews that lead to buyouts.
Private equity firms are also backing middle-market applications developers with cloud business models. Investments in companies such as staffing applications developer Bullhorn or cloud marketing technology company Vocus don't move public equity markets, but they are increasingly common as private equity investors warm to emerging business models and other characteristics of the software business.
"Broadly speaking, the world has woken up to how attractive the software asset category can be for investors," said Ryan Hinkle, managing director at Insight Venture Partners. "It has unusually high potential for recurring revenues. The number of players in software investing feels like it is rising all the time."
Insight, which makes both venture capital and private equity investments in software companies, purchased E2open (EOPN) for $273 million in March. As part of the deal, Elliott Management took a minority stake in the company, reflecting the increased role of activist investors in the software sector.