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Oracle’s Planned Acquisition of NetSuite Raises a Host of Troubling Questions

Oracle's (ORCL) latest cloud acquisition is easily the biggest in its history. It also perhaps raises more troubling questions than any of the others.

The enterprise software giant is buying NetSuite (N) , a major provider of cloud ERP, e-commerce and (to a lesser extent) CRM apps for small and mid-sized businesses (SMBs), for $9.3 billion, or $109 per share, in cash. The price represents a 44% premium to where NetSuite traded going into July 12, when rumors of a deal first flared, and is equal to 7.6 times NetSuite's consensus 2017 sales estimate of $1.22 billion.

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Even after accounting for the fact that NetSuite, like other growing cloud software firms, is reporting higher billings than revenue, the deal isn't cheap. And it could increase an Oracle debt balance that stood at $44 billion as of May 31.

A slew of enterprise cloud firms are trading higher following news of the deal. The list includes e-commerce software/services provider Shopify (SHOP) , storage/file-sharing service provider Box (BOX) , cloud HR/financials software leader Workday (WDAY) , talent management software firm Cornerstone OnDemand (CSOD) and customer support software provider Zendesk (ZEN) . A strong Q2 report from cloud IT service management software leader ServiceNow (NOW) might also be helping.

Shopify, Cornerstone and Zendesk are all plausible buyout targets as the cloud software market continues consolidating. Re/code reported in March that...


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