Oracle on Accenture Acquisition Rumor: "Completely Untrue"
Late last week, a rumor started flying around, saying that Oracle has “hired global specialists to explore the feasibility” of buying Accenture, a global tech consulting and services company. Some thought that it was an early April Fools’ joke and some didn’t even take it seriously and moved on. On the other hand, there were also many analysts that explained why they were skeptical about a potential transaction between Oracle and Accenture. Finally, this week, the truth came to light as an Oracle spokesperson said the rumor was “completely untrue” and the software giant had “never even considered” buying Accenture.
As soon as the takeover speculation came to the surface, shares in the software giant Oracle fell 0.4% to 44.52, while Accenture stock also dipped 0.3% to 120.98. As the rumor started circulating on Wall Street and impacting its share price, Oracle published an outright counterstatement which is not a very common move for Big Red.
Why did Oracle Shy Away from the Deal?
When Oracle debuted in the news with a potential acquisition of Accenture, the industry became polarized as some analysts said that Accenture would give Oracle a much bigger presence in IT services and drive more customers to shift their applications to the cloud, which is exactly what Oracle has aggressively been investing in. However, given that Accenture, employs about 400,000 people worldwide, has a market cap of just over $74 billion and is generating 12-month revenues of $33.7 billion, some skeptical analysts said that the biggest hurdles to this potential deal would be financing the transaction. Considering Accenture’s shareholders would expect a premium offer, the deal would be a big swallow even for acquisitive Oracle that has been an active acquirer of tech companies.
The concerns were not limited to the monetary cost, though. Dublin, Ireland-based Accenture also works with a number of Oracle competitors, including SAP, IBM, Microsoft, Workday, AWS, and Salesforce. As a global tech consulting and services company, Accenture is supposed to take an objective stance when it comes to recommending its clients utilizing the best-fitted technology and platform in their organizations. This situation could have become problematic for both sides. For instance, Patrick Moorhead, founder and principal analyst of Moor Insights & Strategy, agreed that a deal could happen. "Given where Oracle is in the cloud this is a distinct possibility. I would see this as Oracle waving the white flag on its own deliverables and relying on a services model to work with everyone's solution.” On the other hand, the potential deal would have put strains on Accenture’s relationship with the other vendors which eventually would have resulted in revenue loss for Accenture.
The Marriage of a Digital Consultancy and a Technology Provider
The potential of this acquisition also reminded me of how IBM expanded its cloud services business with its acquisition of Bluewolf Group, the largest service partner to Salesforce. For those who are not familiar with the deal, IBM spent over 200 million on Bluewolf to add it to its global business services consulting arm, IBM’s Interactive Experience (iX) unit. On the other hand, Bluewolf is one of the oldest services firms specializing in Salesforce consulting and systems integration services. Therefore, many industry insiders asked the same question; why would IBM acquire a competitor’s key consulting partner? Here is how the executives addressed that question:
“As much as we’d like you to use IBM for everything, we realize that’s not practical,” said Steve Mello, a VP for IBM Commerce.
“IBM was looking for ways to scale its services business there quickly,” said Paul Papas, the global leader for the IBM practice and added: “The synergy was too strong to pass up.”
“We want to be able to connect into any operational system at scale,” Kevin Bishop, VP of customer engagement solutions for IBM, told AdExchanger. “Just because you bought one module, it doesn’t mean you’ll take it all. We’re very interested in tools that allow you to use other tools, no matter the data source.”
From the digital consultancy perspective, though, Corinne Sklar, global CMO and managing director of the marketing services practice for Bluewolf, said that what IBM iX brought to the table was complimentary. “Most traditional agencies are coming at this from a creative or media standpoint but they don’t get how business gets executed at the corporate level,” Sklar said. “You can make tools do anything these days, but we’re looking at business plans and strategy, with deep experience in data and BI behind it. We call ourselves a consulting agency.”
IBM iX and Bluewolf say their hybrid agency model can benefit from macro forces, such as slowing down pressure on agency fees, impacting the larger agency community. With regard to that point, IBM believes that offering both tech and agency services can save the company from being affected by the broader belt-tightening in the media agency space.
The marriage between a digital consultancy and a technology provider is not all rosy, though. Aside from the acquisition price tags, typically, there is a paramount cultural hurdle as for the consultancy firm, its employees are the most important assets whereas the tech provider focuses more on its intellectual property and physical assets. Therefore, the risk of paying a high price on a digital consultancy is the depreciation of the potential deal in case the key talents leave the company due to their self-interest.
I agree that the acquisition of Accenture would have been really pricey but growing through acquisitions has always been part of Oracle’s strategy which made the company lead the market in selling databases to Fortune 500 companies. However, today the company needs to beef up its presence in cloud-based business applications to offset declines in the traditional licensing business. Lately, Oracle agreed to acquire cloud-based ERP provider NetSuite for about $9.3 billion in cash, aiming to gain market share in the fast-growing cloud computing business. Spending big on the acquisitions of cloud companies and restructuring its engineering have paid off very well as the company’s Q3 gross margin for SaaS and PaaS was 65%, up from 51% last year, mostly thanks to the acquisition of NetSuite.
In the light of this insight, let’s paddle back and ask if Oracle would have made this type of acquisition smoothly. As none of us has a crystal ball so we can’t know for sure. Given that the company has also been one of the most active acquirer tech companies, Oracle stands a chance to manage acquisitions wisely. However, the dynamics of the relationship between buyers and consultants differs from that of vendors and buyers thus even though Oracle would have managed to keep the talents within the organizations, the acquisition would have an unfavorable impact on the customer engagement management.