Tuesday, August 02, 2005

ORACLE Acquires I-Flex Solutions

This post is coming immedietely after I got the above news from souveer who generally does not calls up but he did it that too on a very odd time of 7:30 pm.
At about 8:00 AM EST (6:30 PM IST), Oracle made the announcement saying that they have acquired the 42 % stake of CITIGROUP in Iflex for about $ 565 m. The deal will be worth $ 909 m if additionally Oracle is able to acquire 20 % from the market. The 20 % acquisition s going to be an open offer to the share holders of I Flex at about Rs. 882.62. This is mostly as the President of Oracle says is going to be a regulatory requirement rather than company's interest. It has more to do with the accounting norms and will help in combining the balance sheets of two companies faster. Oracle has said that I-Flex will continue with the existing partners like IBM and other technology vendors. Citigroup one of the major customers of I Flex will continue to be its customer for the next 5 years and there will not be any change in this. From I flex point of view this is a real good opportunity to tap the US markets since Oracle runs on close to 5000 banks worldwide and 9 out of 10 top tier banks run Oracle in US. Also since 90 % of the implementations for I Flex involve Oracle as the back end there are no integration issues either which is one of the most common problem after a company takes over another. Oracle has said that the acquisition will get completed by the end of 2005 and I-flex will continue to trade on NSE and BSE. Charles Phillips President, Oracle Worldwide will join the I Flex board. Some of the reasons sighted by Oracle on acquisition of I Flex are:
  • Global footprint for I Flex presence in 114 countries
  • Wide Customer base
  • Consistently ranked number 1 by International Banking Systems
  • A very strong Product base
  • Help Oracle make a stronger footprint in the Banking Industry

Well all these reasons look very good and a deal which can give the customer a more improvised banking solution in terms of robustness, enabling the banks to serve their customers better and faster. But on the hindsight this is a signal of an era of M&A activity in the arena of IT industry which has not been happening at a much larger scale now. Well Oracle acquisiton of I Flex is definitely to make a foot print into India but it has more to do with the way large IT giants like Accenture, IBM, CSC or others are looking for small product companies to acquire.

Another way to look at it would be if we looked at the strategy of Oracle recently. Oracle if we see has been acquiring number of companies in each of the emerging areas like Retail, RTE Data Management, Identity Management, ERP. In the arena of Retail they acquired two firms Retek and Profit Logic which is helping them in transforming and developing the retail solutions for the burgeoning retail industry. In the RTE Data Management, which is going to be the next stage of ERP following SOA, they acquired TimesTen which is a market leader in this service. If people who are reading this blog are from my TAPMI class remember way back in the 3rd term of MIS class I had given a presentation on Real Time Enterprise. Well that's going to become a reality soon. I am happy about it since I said that its a forward looking business strategy and will take some time till Service Oriented Architecture picks up. Next in the list of acquisition which Oracle did recently is Oblix. Oblix is one of the leading service providers ofIdentity Management Solutions. If you are not aware of what a IMS is please forgive me and since its tough to explain that here. So what does all this suggest to us. It clearly suggests that Oracle is moving out of its Database company image to an all rounder image of a end to end computing provider. By acquiring such companies Oracle clearly wants to position itself as the leader in each of the vertical they are operating into. Moreover the database business of Oracle has been facing lot of pressure of competitors like DB2 from IBM and MySQL from open source. The major threat in this case is the second one which is a open source product and is catching up at an amazing speed among various customers in the small and mid size segments. So for Oracle to stick up with Database industry may not be wise and hence they ventured into ERP. Thereafter it was no looking back for Oracle. They did the messy acquisition of PeopleSoft which we had seen in the December 2004. With PeopleSoft they also got JD Edwards. So its all the three ERP rolled into one. Also adding to the technology front this acquisition will help build next generation banking solution based on Oracle's latest Fusion Architecture which will be based on open systems as per the analyst report. Continuing the similar trend if we look at the offering of the Oracle for the financial industry it includes largely either enterprise wide applications like Customer Analytics and Management solution or compliance based solution or Enterprise Infrastructure and Management Solutions which include applications like BPM, Portal, Database etc. But what it needed was a solution which is industry exclusive like a Core Banking Solution for Retail Banking Industry, Treasury, Corporate Banking and Investment Banking. So here comes the biggest gap which is filled by I Flex in totality since Flexcube together with Reveleus and others cover end to end solutions for the banking industry. Hence this completed Oracle's offering for the banking and financial services industry.

What all this means to the IT Industry on a whole. It means that we are now moving onto a era wherein we do not expect the small players to sustain for long time competing with big players. Its only the beginning but we have to see to what extent companies like Oracle, IBM etc will succeed in this mission. Also product based companies in India are too few in number to name a few are Polaris, I Flex, Infosys etc. But again the revenues from product for these companies do not even constitute 20-30 % of total revenues exception is ofcourse Flexcube which contributes close to 56 % of the revenues for I Flex. Hence to what extent will acquiring such small companies will be helpful for these bigwigs is really a question not yet answered.

Well what is the opinion of Polaris on this acquisition will be known later only because CITIGROUP also wanted to exit from Polaris where it holds close to 42 %. But the catch in this case is that CITGROUP cannot exit from the company without the formal consent of Arun Jain. So we have to wait and watch what would CITIGROUP do next. Well the news has already hit the stock market and even inspite of bad first quarter results I flex share price zoomed by about 45 rupees to close at 897 which is more than the price offered by Oracle. Now how does one solve this mystery. Remember CRISIL price shooting up when S&P made an open offer to buy CRISIL.

Its been 2.5 hours of blogging. But I still feel writing more and more about it because this is one merger which is going to change the shape of the industry in which I am working. Let's see what is in store of me.



Arun R said...

Nice post.... covered every detail.....

The Citigroup's current mode is a bit of a worry. They are going sell, sell and sell. Anyways as u had put it that Citi cannot withdraw without the formal consent of Arun Jain, I feel they may take some more time to quit. But looking at their current more, I even worry about the future of E-Serve.

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