NetSuite Inc. is returning to the mother ship.
Funded largely by Oracle Corp. founder Larry Ellison when it launched in 1998, NetSuite is being acquired by Oracle in a $9.3 billion deal, Oracle announced today.
NetSuite was developed as a lighter-weight, less expensive version of Oracle’s high-end business software and has become a significant provider of e-commerce technology, both to retailers and to companies that sell online to businesses, government agencies and other large organizations.
Oracle itself became a major e-commerce technology provider with its 2010 acquisition of ATG, a provider of online retailing software to big retailers and brands. NetSuite primarily serves smaller companies. That difference is reflected in their client base.
Oracle counts 64 of the Top 500 retailers as clients, including Apple Inc. (No. 2), Best Buy Co. Inc. (No. 12) and Nordstrom Inc. (No. 18.) Oracle also has nine clients in the Second 500 of Internet Retailer’s ranking of the top 1,000 online retailers in North America by web sales, according to Top500Guide.com.
NetSuite, by contrast, provides e-commerce software to 19 Second 500 retailers and only two in the 2016 Internet Retailer Top 500, Renovation Brands (No. 471) and Kellyco Detectors (No. 477).
At its founding, NetSuite was among a new wave of technology companies adopting what was then called the software-as-a-service model: The vendor hosts the technology and clients access it via a web browser, paying monthly subscription fees instead of large, lump-sum licensing fees. That SaaS model is now generally referred to as “cloud-based” software, and the success of such cloud companies as Salesforce Inc. has made cloud technology a hot commodity among investors and increasingly popular among enterprises of all sizes.
Oracle, whose software traditionally has been maintained by client companies in their own data centers, began introducing its own cloud software in 2012. Early in 2015, Oracle introduced a web-based version of its Oracle Commerce e-commerce technology.
Buying NetSuite positions Oracle to offer business software, including e-commerce technology, to small and midsized companies as well as large ones.
“Oracle and NetSuite cloud applications are complementary, and will coexist in the marketplace forever,” says Oracle CEO Mark Hurd. “We intend to invest heavily in both products—engineering and distribution.”
Zach Nelson, who has been CEO at NetSuite since 2002 and previously was Oracle’s vice president of worldwide marketing, says the deal will “accelerate our pace of innovation.”
“NetSuite will benefit from Oracle’s global scale and reach to accelerate the availability of our cloud solutions in more industries and more countries,” Nelson says.
NetSuite initially offered general business software that manages financial accounting, inventory, customer data and the like, an all-in-one package typically called enterprise resources planning, or ERP. The company began investing heavily in e-commerce in 2011, with the hiring of Andy Lloyd, the CEO of e-commerce software firm Fluid Inc., and subsequently expanded its e-commerce team and upgraded its software both for business-to-consumer and business-to-business companies selling online.
Forrester analyst Paul Hamerman says the deal is in line with other acquisitions of SaaS technology providers, with a price tag of about 10 times current revenue. “This is good for Oracle in terms of growing subscription revenue and gaining share in the fast-growing SaaS ERP market, but it has to resolve a number of product overlap issues with Oracle Cloud ERP,” he says.
Among the Top 500 retailers impacted by the deal is Jimmy Jazz (No. 388), which uses the OrderMotion order management system that NetSuite acquired in 2013 and is now deploying NetSuite’s SuiteCommerce e-commerce system as well as its ERP and warehouse management software. “Jimmy Jazz prides itself in partnering with best-in-class software providers,” says David Wachter, president of Jimmy Jazz Direct. “With Oracle’s acquisition of NetSuite, we believe this will position us for future growth as the two companies leverage synergies and economy of scale.”
NetSuite is the provider of order management technology to 15 retailers in the Top 500 and 31 in the Second 500; Oracle to 19 Top 500 and five Second 500 e-retailers.
As of March, Oracle co-founder Larry Ellison and his family owned about 45.4% of NetSuite’s common stock, according to a company filing. Ellison has “control over approval of significant corporate transactions,’’ according to the filing.
NetSuite also released its second quarter earnings today, reporting:
- Revenue increased 30% to $230.8 million.
- Cash flow from operations increased 53% to $36.7 million.
- A net loss of $37.7 million, an increase of 16.7% from a net loss of $32.3 million in the same period a year ago.
- On a non-GAAP basis that excludes certain items, net income was $6.6 million, nearly four times the company’s non-GAAP net income of $1.7 million in the second quarter of 2015.
Bloomberg News contributed to this article.