Before market opening Oracle announced the intent to acquire ACME Packet (ACME), subject to ACME shareholder approval and the usual regulatory details. It's Oracle's first acquisition of 2013 and values ACME at $1.7B at net cost. Quite a lot of money for a public company that's not growing and loosing money.
So why did Oracle buy at an unusual high multiple and a 22.2% premium? Let's see what the strategists in Oracle 500 Parkway maybe looking at:
There is more growth potential - higher than what you can achieve in Oracle's traditional technology and application software business - in the SBC market space: Carriers need to revamp their 2G networks to 3G and and 4G networks. Data volumes are growing exponentially here - so SBC capabilities get even more critical. On the enterprise side the replacement of older protocols with SIP is an equal growth opportunity. If executed right and with Oracle's global presence - the ACME software assets can grow significantly faster than any of the other Oracle businesses.
Oracle's co-President Mark Hurd make comments along this line in the press release :
Here is how ACME helps service providers:
But Oracle would not play their cards too early. Since they are really up to core telco provider territory and up against competitors like Cisco, Alcatel Lucent, Huawei, ZTE etc.
In more general terms - here is how ACME helps enterprises:
Owning this infrastructure can give Oracle a performance advantage for Oracle IP traffic and a leg up on the competition. And while its unlikely Oracle will use this against 'other' IP packets - I expect Oracle to earn an implicit trust advantage over other offerings, similar to the one Cisco routers have - when it comes to use a Cisco VoIP solution.
And this ties again to Oracle's corporate DNA: Since founding Larry Ellison has had a key eye on Total Cost of Ownership (TCO). No Oracle project ever got started without a specific ambition to lower TCO for customers, usually at the expense of existing or older technologies (usually from competitors).
Owning the SBC architecture of enterprises and telco service providers will give Oracle significant strategic advantages when it comes to deploying cloud solutions and architectures in a more and more mixed packet IP stream.
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| View of Oracle 500 Parkway |
So why did Oracle buy at an unusual high multiple and a 22.2% premium? Let's see what the strategists in Oracle 500 Parkway maybe looking at:
Oracle chases growth alleys
Oracle revenue growth has largely been fueled by acquisitions and may slowing down, so Oracle is looking for good strategic investments to keep revenue growing. ACME is interesting in that respect, as it has seen a reduced market value because of poor business performance - while it still has a commanding lead with telcos around the world (89% use them) and is a leader in Gartner's Magic Quadrant for the SBC (Session Border Protocol).There is more growth potential - higher than what you can achieve in Oracle's traditional technology and application software business - in the SBC market space: Carriers need to revamp their 2G networks to 3G and and 4G networks. Data volumes are growing exponentially here - so SBC capabilities get even more critical. On the enterprise side the replacement of older protocols with SIP is an equal growth opportunity. If executed right and with Oracle's global presence - the ACME software assets can grow significantly faster than any of the other Oracle businesses.
Another engineered system option
Oracle doesn't get tired at pointing to their strategy of engineered systems. Bundling low level networking and SBC capabilities in to an 'ExaNetNet' server (100% made up product by me) - is something I would not be surprised to see. Especially since Sun had a very successful hardware and IP combo in the dot com boom. Those corporate memory functions are strong - even post acquisition.Growth for the Communications Division
This is the most conservative scenario for Oracle, and makes sense by itself - though IMHO it does not justify the price paid. But this is how Oracle is playing this with the standard procedure letter to customers by Bhaskar Gorti, the SVP in charge of Oracle Communications.Oracle's co-President Mark Hurd make comments along this line in the press release :
“The proposed acquisition of Acme Packet is another important piece in Oracle’s overall strategy to deliver integrated best-in-class products that address critical customer requirements in key industries. The addition of Acme Packet to Oracle’s leading communications portfolio will enable service providers and enterprises to deliver innovative solutions that will change the way we interact, conduct commerce, deliver healthcare, secure our homes, and much more.”
Here is how ACME helps service providers:
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| From: http://www.oracle.com/us/corporate/acquisitions/acmepacket/general-presentation-1903208.pdf |
But Oracle would not play their cards too early. Since they are really up to core telco provider territory and up against competitors like Cisco, Alcatel Lucent, Huawei, ZTE etc.
The bigger picture
The real limiting factor for the cloud are Internet speeds - how fast can elastic applications be provided to the user inside and outside the enterprise. In any case - no matter if private or pubic cloud - SBC will be the code that will channel IP packets, handle the over efficiently between IP networks. What if a session delivery network could deliver complete instance images more efficiently by prioritizing, grouping and moving the related IP packets? .In more general terms - here is how ACME helps enterprises:
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| From: http://www.oracle.com/us/corporate/acquisitions/acmepacket/general-presentation-1903208.pdf |
Owning this infrastructure can give Oracle a performance advantage for Oracle IP traffic and a leg up on the competition. And while its unlikely Oracle will use this against 'other' IP packets - I expect Oracle to earn an implicit trust advantage over other offerings, similar to the one Cisco routers have - when it comes to use a Cisco VoIP solution.
And this ties again to Oracle's corporate DNA: Since founding Larry Ellison has had a key eye on Total Cost of Ownership (TCO). No Oracle project ever got started without a specific ambition to lower TCO for customers, usually at the expense of existing or older technologies (usually from competitors).
Owning the SBC architecture of enterprises and telco service providers will give Oracle significant strategic advantages when it comes to deploying cloud solutions and architectures in a more and more mixed packet IP stream.