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Oracle buys NetSuite for $9.3bn to upscale cloud services strategy

Global technology business Oracle has entered into a definitive agreement to acquire cloud services and software provider NetSuite in a deal valued at $109 per share in cash, or approximately $9.3 billion.

The move will help accelerate Oracle's cloud services strategy, helping it compete with the likes of Amazon, Microsoft and Salesforce in that space – the latter having acquired NetSuite competitor Demandware earlier this year to diversify and strengthen its eCommerce offering.

Silicon Valley-based NetSuite, which was founded in 1998 by Evan Goldberg, offers its customers cloud-based financial and ERP software products, and boasts a significant number of SME clients as well as larger enterprise partners such as surfer brand Billabong and buggy manufacturer Maclaren. In the last few years under the stewardship of CEO Zach Nelson, the vendor has ramped up its digital retailing solution – dubbed "Omnicommerce" – as well as acquiring prominent retail tech companies like email marketing provider Bronto and eCommerce platform Venda.

Both Goldberg and Nelson are ex-Oracle execs, and this week's announcement of the two companies coming together has long been a topic of speculation among the analyst community. With Oracle co-founder, Larry Ellison, NetSuite's largest investor, a merger has been mooted for a number of years.

A "Special Committee" comprising independent directors on the Oracle board unanimously approved the transaction on behalf of the company, with the takeover expected to close before the end of 2016. Completion of the deal now rests on the outcome of regulatory approvals, as well as other closing conditions being satisfied such as NetSuite stockholders tendering a majority of the outstanding shares in the tender offer.

Oracle noted the deal also rests on approval from a majority of shareholders not affiliated with Larry Ellison and his family.

What the key players said:

Mark Hurd, co-CEO of Oracle: "Oracle and NetSuite cloud applications are complementary, and will coexist in the marketplace forever. We intend to invest heavily in both products – engineering and distribution.

Safra Catz, co-CEO of Oracle: "We expect this acquisition to be immediately accretive to Oracle's earnings on a non-GAAP basis in the first full fiscal year after closing."

Goldberg, founder, CTO & chairman of NetSuite: "NetSuite has been working for 18 years to develop a single system for running a business in the cloud. This combination is a winner for NetSuite's customers, employees and partners."

Nelson, CEO of NetSuite: "NetSuite will benefit from Oracle's global scale and reach to accelerate the availability of our cloud solutions in more industries and more countries. We are excited to join Oracle and accelerate our pace of innovation."

Spencer Izard, an independent technology analyst, told Essential Retail that he believes Saleforce's continued growth in recent years has played a significant role in Oracle's move towards growing its business deeper into specific industry verticals such as retail.

"After a very aggressive bidding war Salesforce was successful in acquiring Demandware by outbidding another major software company whose name was not disclosed," Izard explained.

"Given the competitive nature of the acquisition I strongly believe that Oracle was the most likely alternative suitor."

Izard says that while Oracle continues to pivot its messaging towards being a cloud software provider it will take some time for this migration of platforms to take place.

"The NetSuite acquisition is a shrewd move on Oracle's part as it allows them to move quicker into the cloud in respect to retail by showing the industry and retailers just how committed they are," he added.

"It also provides them with continued momentum to compete with Salesforce with Demandware, and SAP with Hybris. The question is will NetSuite be absorbed or maintained as its own brand but with now even stronger integration across the Oracle suite of technologies."

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