The past 24 hours have been most interesting in terms of the continuing SciQuest saga. Specifically, Oracle’s reported interest in acquiring the troubled company.
According to sources in the know, there have been high level discussions between the two organizations that have been ongoing for some time.
Since I have not received an official response from either Oracle or SciQuest, be sure to keep this in mind as you read the remainder of this post. Especially since there have also been rumblings about a privatization plan at SciQuest.
Now on the surface, this may look like opposing or contradictory strategies, thereby drawing into question the veracity of the information. At least this was my initial reaction given that I received both “tips” within a 24-hour period.
However, and based on research, there is actually a potential symmetry with the privatization before acquisition approach per the following:
- As acquirers typically pay at least a 20-40% premium over the current stock price, they can entice CEOs and other managers of public companies – who are often heavily compensated when their company’s stock appreciates in value – to go private.
- In addition, shareholders, especially those who have voting rights, often pressure the board of directors and senior management to complete a pending deal in order increase the value of their equity holdings. Many stockholders of public companies are also short-term institutional and retail investors, and realizing premiums from a take-private transaction is a low-risk way of securing returns.
An excerpt from a McKinsey article would also seem to support a strategy of privatizing before being acquired:
“Since market values can sometimes deviate from intrinsic ones, management must also beware the possibility that markets may be overvaluing a potential acquisition. Consider the stock market bubble during the late 1990s. Companies that merged with or acquired technology, media, or telecommunications businesses saw their share prices plummet when the market reverted to earlier levels. The possibility that a company might pay too much when the market is inflated deserves serious consideration, because M&A activity seems to rise following periods of strong market performance. If (and when) prices are artificially high, large improvements are necessary to justify an acquisition, even when the target can be purchased at no premium to market value. Premiums for private deals tend to be smaller, although comprehensive evidence is difficult to collect because publicly available data are scarce. Private acquisitions often stem from the seller’s desire to get out rather than the buyer’s desire for a purchase.”
In the end, it comes down to money. Plain and simple.
The response . . . “SAP bought Ariba.”
They then added “there’s no one else with the same technology/footprint that comes close” (to SciQuest).
So there you have it.
Once again, I have not received a denial or confirmation from either organization, so we are at a somewhat speculative stage at this point in time.
This being said, what are your thoughts regarding a possible Oracle – SciQuest deal?
Editor’s Note: Be sure to read the follow-up post Oracle And SciQuest: When Market Need And Timing Trumps Corporate Development Models by Jon Hansen