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February 10, 2012

Transaction analysis
Oracle to Acquire Taleo 

Financial Overview: 

  • Transaction Value: $1.9B
  • Transaction Structure: Cash 
  • Enterprise Value: $1.8B
  • EV/Revenue: 5.8X                       
  • EV/EBITDA: 97.0X    

martinwolf Analysis

  • Oracle Corporation announced that it has entered into an agreement to acquire Taleo Corporation, a provider of cloud-based talent management for $1.9B. The proposed transaction is expected to closTaleo logoe mid-year 2012.
  • This announcement came at no surprise, as many of us predicted a transaction like this had a high likelihood of taking place.
  • MW's research had supported this kind of move, and we have commented on this previously.
    • In a Spotlight from 12/05/11 on SAP's acquisition of SuccessFactors (NYSE: SFSF), martinwolf stated, "The market is expecting further consolidation as well with Taleo (TLEO) up 19.8%.... Buyers in the space include names such as Oracle and Workday as these major players continue to search for ways to drive their cloud computing revenue for potential targets such as Taleo, Cornerstone on Demand, and Kenexa."
    • The MW IT Index® for 4Q11, published earlier this month, noted on page 4, "SaaS will continue to see accelerated growth during the next 12-24 months for companies offering point solutions specialized for vertical industries." It went on to say, "A battle for supremacy, however, among the biggest players in SaaS is heating up. As a result, the enterprise value of the de facto market leader,, will be under pressure as the big enterprise software players - SAP, Oracle, and IBM - make significant investment in SaaS."
  • Oracle will use Taleo cloud capabilities to manage its Human Resource operations and employee careers.
  • This is a good move for Taleo because the company is currently losing money, and the valuations for SaaS are crazy today. 
  • The company trades like a coupon - not a stock.  Taleo was sold for 100% over what it was trading for in September and October, but nonetheless Oracle will be very successful because they will leverage Taleo through their sales organization.

Recent related acquisitions by the acquirer:

  • The quest for the leadership position in the SaaS space has been like a game of chess between titans. Oracle is famous for getting into a space fast with huge acquisitions to crash the competition, so it made the first move with its  acquisition of Rightnow Technologies in October 2011.
  • Its rivals had made similar moves, such as IBM's acquisition of Demandtec and SAP countered with its acquisition of SFSF. Oracle's acquisition today may prove to be a checkmate.

Expectations for the company and/or the space:

  • This transaction highlights the heated consolidation wave in the cloud space. More acquisitions will be forthcoming with large purchase tickets and rich valuations. Watch out,
  • Focusing on the numbers between SFSF and Taleo, we see similar gross margins, at 68%, but different growth rates. SFSF had 55% year over year top line growth and an EBITDA of -11%. SFSF sold for 14.5X EV/Rev. Whereas Taleo had a 33% year over year top line growth, an EBITDA of 6%, and sold for just 5.8X EV/Rev. The valuation arbitrage is consistent with our research on SaaS - investing in sales and marketing leads to higher growth rates, and the first seller in the market reaps a higher valuation, as a part of a leadership premium.
  • First to run an auction gets the better price by a margin. Most likely SAP had to bid up the price to win the Success Factor deal, and Oracle, not willing to pay that kind of valuation, probably backed out.
  • After acquired Rypple, it is the logical buyer for Cornerstone on Demand. However, it is not yet clear if as a company SFDC is ready to place a billion dollar bet. They don't see why CRM and HCM need to be from the same vendor. Our prediction is that SFDC will not make a major acquisition (>$1B) in HCM over next 12 months. Instead they will continue to make group/IP hires and small tuck-ins at an accelerated pace with rich multiples. 
  • Mid-market IT services companies such as Oracle and SAP partners, if you have not developed and made initial investments in a business model around a SaaS-based services offering, you are late to the party.
    • Focus on increasing the managed services portion of the business, even if that comes with upfront implementation fees, since the revenue model of upfront project implementation fees is not sustainable.  
    • Also, evaluate how you can become a cloud services partner. Evaluate switching from software customizations to business process re-engineering for upfront project revenues.

What this means for mid-market HCM players:  

  • Mid-market HCM offerings are consolidating across the different sectors, as martinwolf research had indicated a year ago.
  • There are several PE-backed platforms pursuing the mid-market through aggressive organic and acquisition driven growth strategies.
  • Decide if you are a buyer or a seller.
    • If a seller, focus on top line growth versus bottom line growth.
    • If a buyer, sorry, it's a seller's market. 

Please click here to read the press release.   


martinwolf was not the adviser in this transaction.  


To learn more about this transaction or our firm, contact Tim Mueller at or (925) 215-2761. 

About martinwolf    


Based in Silicon Valley, martinwolf is a leading middle market M&A Advisory focused on companies with services-based business models. Since 1997, our team has completed more than 100 transactions in six countries. We are a five-year member of the Merrill Lynch PS Referral Network, and were selected as ICICI Bank's (India's leading private bank) exclusive strategic partner for acquiring U.S. IT companies. martinwolf is a member of FINRA and SIPC. For more information, visit


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