Teradata and SAP will be attractive targets if Oracle's rivals believe Larry Ellison is going to keep his best software to himself.
An online bookmaker thinks there's a 32% chance HP and IBM will merge before April 30. That's ludicrous. But what's not so farfetched is the notion that Oracle's move to limit hardware options for its enterprise software could trigger a wave of acquisitions in the tech sector.
Oracle last week said it no longer plans to produce versions of its database and ERP apps compatible with Intel's 64-bit Itanium chip—a move that mostly affects Hewlett-Packard and its line of Superdome and Integrity servers. My early take was that Oracle is betting that many HP customers would rather move their Oracle implementations onto new hardware, namely Oracle/Sun Sparc, rather than undergo a painful migration to a new database and application stack.
The other shoe will drop if Oracle decides to discontinue support for IBM's Power architecture, which runs the AIX and Linux operating systems, a move that Illuminata analyst Jonathan Eunice thinks isn't out of the question.
Such tactics could help Oracle justify its $7.4 billion acquisition of Sun Microsystems if they reinvigorate Sun server sales. The latest numbers show Sparc-based systems slipping in market share while HP and IBM server sales are growing.
The flaw in Oracle's thinking is that HP and IBM aren't going to sit idle in the hope that the world's biggest database vendor doesn't cut their hardware loose completely. Database and ERP software drive billions in hardware sales, and neither Big Blue nor HP is going to leave the future of its big iron business to the whims of Larry Ellison.
In databases, IBM is already covered with the well established DB2, which holds second place in the market behind Oracle. HP's x86 systems can run Microsoft's SQL Server database on Windows, but HP lacks an in-house database product for the high-availability Unix market that could replace Oracle-on-Itanium. That's the main reason it wouldn’t be at all surprising if HP snaps up Teradata.
Teradata has all the parts—a scalable, parallel database, data warehouses, business intelligence apps, and appliances--that, when combined with HP's global presence, could provide the basis for a credible alternative to Oracle. But Teradata wouldn't come cheap.
The financial meltdown in 2009 weighed heavily on M&A activity, but transaction volumes gained steam late last year and multiples are rising as bidding heats up.
The median EBITDA multiple for software deals rose from 10x in 2009 to 11.9x in 2010, according to investment bank Berkery Noyes, while the median revenue multiple jumped from 1.5x to 1.8x. HP could therefore expect to pay anywhere from $3.5 billion to $4.5 billion for Teradata, based on the company's recent sales and earnings.
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