Oracle acquires Taleo

Transaction Details
Date: Announced on 2/9/2012
Enterprise Value:  $1.8 billion
Seller Revenue (TTM):  $309 million
Revenue Multiple (TTM):  6.0x
Premium:  The purchase price is 18% and 24% above Taleo’s one day and month prior valuation
Payment Terms:  100% cash

Oracle Business Description

Oracle Corporation is an enterprise software company that develops, manufactures, markets, distributes, and services database and middleware software, applications software, and hardware systems worldwide.  The company was founded in 1977 and is headquartered in Redwood City, California.

Taleo Business Description

Taleo Corporation provides SaaS based talent management software solutions. The company’s products provide medium and large enterprises with a wide range of talent management solutions including sourcing, recruiting, and onboarding to performance management, goals management, development planning, succession planning, compensation, and learning.  Taleo Corporation was incorporated in 1999 and is headquartered in Dublin, California.

SEG’s Perspective

Oracle’s acquisition of Taleo marks its second, billion dollar acquisition of a SaaS provider in the last four months.  In November, the Company acquired RightNow for $1.5 billion, a TTM revenue exit multiple of 7.0x.  Oracle’s acquisition of Taleo falls on the heels of Taleo’s acquisition of Cytiva Software, a Software Equity Group client.  In December 2011, SAP acquired SuccessFactors, another provider of talent management software, for $3.5 billion.  The Taleo and SuccessFactors acquisitions are evidence the HR management (HRM) market, a superset of talent management, has become sizable enough to regain the attention of the large ERP providers who are quickly losing sales to emerging SaaS providers.  According to Forrester, the HRM market reached $4.8 billion in 2011 and is expected to grow to $6.1 billion in 2014, representing an 8% CAGR over that time period.  Talent management is growing even quicker.  Over the same time period, this sub-segment of HRM is expected to grow at a 17.0% CAGR.  Taleo, a leading provider in talent management, is growing much quicker, closing fiscal 2011 with TTM revenue growth of 30.2%.  Yet, given Oracle’s $36 billion of revenue in 2011, Taleo’s growth and revenue contribution hardly registers on Oracle’s P&L.  Make no mistake, the acquisition of Taleo is about extending Oracle’s legacy HR product suite with talent management capabilities, acquiring a proven SaaS platform to potentially leverage for other product lines, and ensuring Oracle remains competitive with SAP.

SaaS M&A Market Overview

The SaaS M&A market is hot.  In 2011, there were 200 SaaS M&A transactions, up 91% from 2010’s 105 M&A transactions.  Valuations are ramping as well.  The median EV/Revenue exit multiple climbed to 3.7x in 2011, up from 3.2x in 2010.  Among the early adopters of SaaS, the talent management space is one of the most active SaaS M&A product categories, accounting for 10% of all SaaS transactions in 2011.

Our 2012 Annual M&A Buyer Survey, a comprehensive survey of 200 corporate development heads of the largest software buyers in the world, confirmed that SaaS M&A will continue to be highly active in 2012.  Of our respondents, 46% stated that it was “very important” or “essential” their acquisition targets be “all or substantially SaaS/subscription based”.  By contrast, only 13% of buyers indicated SaaS was “very important” or “essential” in 2010.

SEG’s HR Management Experience (SaaS and Software)

Software Equity Group has consummated 10 HR Management SaaS and software acquisitions in recent years. Specific expertise includes selling companies providing applications for employee recruitment management and onboarding, employee performance management, employee training & learning management, employee time and attendance, employee benefits administration, employee expense management, & employee shift scheduling.  Buyers of these clients have included Taleo, Kronos, Kaplan, Administaff, Wolters Kluwer, & EBIX…to name a few.  To learn more, please contact Kris Beible at kbeible@softwareequity.com.

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