Oracle Agrees to Buy RightNow for $1.5 Billion to Expand Cloud Computing

By Sarah Frier - Oct 25, 2011 3:25 AM GMT+0700

Oracle Corp. (ORCL), the world’s second- largest software maker, agreed to buy RightNow Technologies Inc. (RNOW) for $1.5 billion, gaining customer-service expertise to bolster a new Internet-based product.

RightNow investors will get $43 a share, Oracle said today in a statement. That’s 20 percent more than Bozeman, Montana- based RightNow’s closing price on Oct. 21.

The acquisition will add software that helps companies serve customers using call centers, Internet and social networks. Oracle is making its biggest purchase since Sun Microsystems Inc. last year after introducing the Oracle Public Cloud, which delivers software online via cloud computing, to spur demand for its programs.

“Oracle is getting serious about its own cloud,” said Richard Williams, an analyst at Cross Research in Livingston, New Jersey, who recommends buying the stock. “This is the first infrastructure buy, and it means they’re putting the plumbing for the cloud together.”

Oracle gained 2.3 percent to $32.87 at the close today. RightNow added 19 percent to $42.94. The stock had advanced 52 percent this year before today.

The acquisition values RightNow at 68 times earnings before interest, taxes, depreciation and amortization, the highest multiple of similar deals in the past five years, according to Bloomberg data. The median ratio of six enterprise software and service deals of more than $1 billion was 17 since 2006 in the U.S., according to the data.

High Multiples

Companies that offer software as a service, or SaaS, are sought after, Williams sad.

“Oracle is paying a premium to lock them up,” the analyst said. “It’s not unexpected that this would be an expensive acquisition because SaaS companies are trading at very high multiples.”

RightNow Chief Executive Officer and founder Greg Gianforte’s 20 percent stake is worth about $290 million in the deal. He last sold 100,000 shares, according to an Oct. 5 filing.

After gobbling up more than 70 companies in a $40 billion buying spree, Oracle said this month it is focusing on smaller deals and building on its own products to find growth. Oracle embarked on its run of acquisitions in 2005 when it bought the human-resources software maker PeopleSoft Inc.

RightNow’s acquisition is Oracle’s biggest since the purchase of Sun Microsystems, completed in January 2010, according to Bloomberg data. Oracle has relied on takeovers to boost sales to $35.6 billion in the fiscal year ended in May.

‘Pricey’ Cloud

“RightNow’s leading customer service cloud is a very important addition to Oracle’s Public Cloud,” Redwood City, California-based Oracle said in the statement.

Oracle, which has made nine acquisitions over the past 12 months, is paying seven times RightNow’s revenue, according to Bloomberg data.

“A lot of the acquisitions in the software-as-a-service space tend to be pricey because everybody sees that the market is moving towards the cloud, and everyone wants to make sure they have a well-placed strategy,” said Kirk Materne, an analyst at Evercore Partners Inc. (EVR) in New York, who has an “overweight” rating on Oracle. “A lot of these cloud-based deals tend to be in anywhere from five to 10 times revenue.”

To contact the reporter on this story: Sarah Frier in New York at sfrier1@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net