After an uncharacteristic period of inactivity on the M&A front, ERP software giant Oracle burst back onto the scene last week executing two deals totalling over €1bn in 3 business days. There was also somewhat of a recurring theme in this new wave of M&A – cloud, naturally (what else?), but, more precisely, vertical cloud (a type of cloud solution designed specifically for a business sector or industry).
Textura, the first deal announced, is a provider of contract and payment solutions to the construction industry, whilst Opower sells customer engagement and energy efficiency solutions to 100 global utilities companies, analysing 600 billion meter reads.
Taking a look back over the history of large-scale cloud acquisitions, the theme has typically been about adding horizontal functionality – the wave of investment into HRM software, for example – which saw SAP buy SuccessFactors for €2.6bn and Oracle pick up Taleo for €1.5bn – or the investment into marketing automation including deals like Oracle’s acquisition of Responsys for €1.1bn in late 2013.
What Oracle’s latest activity tells us is that there are now a number of SaaS-model vertically-focused vendors with enough scale to start to attract the attention of the majors, not only because they have the potential to become a thorn in the side but also because they have the potential to leverage the flexibility of cloud technology to provide a better solution to those markets.
And, as you would expect for this scale of SaaS transaction, multiples were good, although in the context of a landscape that has been dominated by crazy unicorn valuations, they actually look pretty sensible. The Textura deal was done at around 5.6x current year sales and Opower around 3x, although neither business was profitable (of course).
In a market in which it feels like unicorns may have had their day in the sun, it may be time for these kinds of businesses – ones that have built a sustainable, modern model serving vertical markets ripe for change are a really good bet.