Oracle Agrees To Buy Taleo For $1.9 Billion

Oracle (ORCL) sees the future of talent management in the cloud.

The business software giant said as much early Thursday when it announced it would buy Taleo (TLEO), a fast-growing maker of software used to recruit and train employees, for $1.9 billion. The price, roughly $46 a share, is an 18% premium over Taleo’s Wednesday closing price. But Taleo shares had risen 78% since early August.

Oracle is making its move three months after rival SAP (SAP) said it would acquire SuccessFactors (SFSF), a Taleo competitor, for $3.4 billion. The move also comes five months after Oracle agreed to pay $1.5 billion to buy RightNow Technologies, a customer relationship management software maker.

Like RightNow, Taleo gives Oracle another avenue into cloud computing, which lets companies store data and apps on the Internet, or the cloud, that users can access as needed. Oracle is mostly a maker of conventional software that business users license and maintain in-house. Cloud software vendors often offer what’s called software as a service.

Taleo coming so soon after RightNow is another step in the cloud direction, says Brent Thill, an analyst for UBS Securities.

“What this is about is that Oracle is behind in the cloud and they have really got to get moving,” Thill said. “Oracle is trying to build out a cloud portfolio.”

Oracle also likely is reacting to the SAP buyout of SuccessFactors, which gives the German firm a cloud-based provider of talent management software, says Curtis Shauger, an analyst for Caris & Co.

“It’s a bit of a defensive move because the SaaS (software as a service) vendors in general, led by (CRM), are taking share,” Shauger said. “The world of technology is fundamentally changing — heading to the cloud.”

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Oracle also is playing catch-up in the talent management arena.

The company cornered a big piece of the market for human resource management software with its acquisition of PeopleSoft in 2005 for $10.3 billion. That software provides employee data such as title and date of hire and payroll and benefit information.

But Oracle’s attempts to use its PeopleSoft software to develop talent management software, which is used for recruiting, training and more, had fallen flat, says Scott Berg, an analyst for Fetl & Co.

“PeopleSoft didn’t have a lot of functionality in what is considered the talent management space,” Berg said. “Though PeopleSoft and Oracle have developed a lot of products over the last seven or eight years, they just weren’t competing that well with Taleo and other (talent management) vendors.”

Oracle had to make a move to better compete with SuccessFactors-SAP, says Thomas Otter, an analyst for research firm Gartner.

“It gives Oracle a response to the SuccessFactors offering,” he said. “Oracle’s had a recruiting product for ages, but it’s not been particularly strong. This gives them stronger capabilities in quite a few areas of human resource management where they were relatively weak.”

Annual global sales of talent management software are around $4 billion, says Otter, who didn’t have a market share breakdown.

“Taleo and SuccessFactors came from nowhere to take a big chunk of that market,” he said.

Shares of Taleo jumped more than 17% on Thursday, closing at 45.64. Oracle rose a fraction.

The catch-up factor played a role in the deal, agrees analyst Thill.

“It’s an admission that they are behind, that they have to build the cloud out,” he said.

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Apart from recruiting software, Taleo’s software can handle electronic learning and performance management. These elements all enhance the recruiting software package, says Thill.

Taleo’s revenue has risen at least 24% year over year for the past five quarters. It’s slated to report Q4 results on Tuesday.

Analysts polled by Thomson Reuters on average expect Taleo to report fourth-quarter profit minus items of 26 cents. That estimate is up 3 cents just since Wednesday. Taleo reported Q4 2010 per-share profit of 23 cents.

Revenue is expected to rise 21% to $86.3 million.

Over the past few years, Taleo has acquired several companies to expand its offerings and boost revenue. Examples include Jobpartners, a talent management software company acquired in July, and, an e-learning management software company it bought in September 2010.

Some analysts were surprised Taleo decided to sell.

“Taleo itself has grown by acquisitions and it does very well in recruitment,” said Gartner’s Otter.

Taleo, in a statement, said the two companies “expect to create a comprehensive cloud offering to help organizations improve the performance of their business by unlocking the power of their people.”

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