October 26, 2011

The Cloud is Hot – Oracle’s Acquisition of Rightnow Proves It

Last month it was Salesforce buying customer support solution, Assistly. This month it’s Oracle buying RightNow Technologies, a more mature, but similarly positioned player in the customer services software space. Earlier this week, Oracle announced plans to acquire RightNow for approximately $1.5 billion (yes, we double checked to ensure this was correct). The transaction value represents nearly 7.0x trailing revenue and an EBITDA multiple so rich that we won’t even mention it. The acquisition price of $43.00/share represents a 20% premium to the prior day close and nearly 50% premium to the 1-year average.

While Oracle has its own CRM on-demand solution, the acquisition of RightNow gives them a cloud-specific customer service module and fills the void that Oracle had in terms of customer-facing engagement tools. In addition to focusing on customer service via the web, RightNow’s technologies also provide social media management, application development and search. If adapted to work with its existing software products, Oracle would be able to provide more robust solutions for companies, including offerings for databases, personnel and sales. It also puts Oracle in more direct competition with Salesforce.com, one of the leaders in cloud-based sales management software.

The acquisition, which is Oracle’s largest since its $7.4 billion takeover of Sun Microsystems in 2009, is part of a larger push by the company to build out its cloud-based software services. Earlier this month, Oracle announced that it was also acquiring Endeca Technologies for a reported $1.1 billion. Endeca is a business intelligence software company that also offers products to help online retailers improve customer service.

Our understanding is that RightNow ran a “limited” market check for bids to compete with Oracle. The company was shopped to other large strategics, but was likely too rich in value for others or didn’t make strategic sense from a technology platform integration standpoint.

The acquisition of RightNow represents the first time Oracle has made an acquisition of a large pure-play software-as-a-service cloud company. It raises the prospect that others, like SAP, will be more active. The question that remains is who will be the next company to acquire other customer facing solution vendors such as Zendesk, eGain, Kana and Moxie, among others.