Month: May 2015

Why Oracle Should Buy Salesforce

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CEOWith news, rumors, speculations floating around the potential acquisition in the cloud market, shareholders of Salesforce.com are enjoying the surge in their share price, especially after Bloomberg reported that it could be a potential cloud computing acquisition target. With Salesforce market capitalization standing at $47 billion, its acquisition, if ever happens, will be one of the biggest in the technology industry. Such a deal, as per my view, can be financed only by a few Fortune 100 players, and when I say “few Fortune 100 players”, I’m referring to Microsoft, Oracle and IBM (not necessarily in this order of precedence).

In this article, I’m presenting my thoughts on “Why Oracle Should Buy Salesforce” and discuss some of the key points while the business leaders work on this deal with the Bankers. You may also want to read my previous articles on Information Technology Industry and Key Metrics here, where I highlighted the key parameters pertaining to this industry.

(1) Oracle aspires to go big in cloud computing

This is the very first thought that comes to my mind when I think of this deal. Since Oracle acquired Sun Microsystems for $7.4 billion on January 27, 2010 to compete with and beat IBM’s high-end systems and SAP applications, its cloud offerings, particularly Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS) and Software-as-a-Service (SaaS) has enhanced. Salesforce acquisition will help Oracle:

  • uplift its cloud sales revenue from the current $2 billion to $5-6 billion
  • help improve its market share. According to Gartner, the combination would make Oracle the largest player in the CRM market
  • enhance its customer base, and
  • complete its SaaS Suite

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6 Points to Keep in Mind While Pursuing Entrepreneurship

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EntrepreneurDo you dream of not just working for yourself, but also of building a billion dollar organization? If so, here are the six points to keep in mind as you walk the entrepreneurial path:

1) Believe in Yourself

If you don’t believe in yourself, who else will? Entrepreneurship is a lonely journey (till you find a Partner) – forming the idea alone, launching the company alone and taking your first step alone in the market can be very hard. So, it’s very important for you to believe in yourself, your capabilities and your instincts. Always remember, Titanic was built by professionals. Google and Apple were started by Amateurs.

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Leveraged Buyout (LBO): Economics and Return Analysis

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EconomicsIn this part, the Part 4 of my article on LBO, I’m going to run you through its economics – the metrics used to judge an LBO candidate and how it generates returns. But before reading further, you may want to take a glimpse of my previous articles on LBO through the following links so that we’re on the same page.

Part1: Leveraged Buyout – An Overview

Part2: Leveraged Buyout – What Makes a Strong LBO Candidate?

Part3: Leveraged Buyout – Key Participants

Metrics Used To Judge An LBO Candidate

There are two metrics that defines the attractiveness of an LBO candidate – (1) Internal Rate of Return (IRR), and (2) Cash Returns.

IRR is the primary metric that measures the total return on the sponsor’s equity investment (which includes additional capital infused or dividends received) during the investment period. For everybody’s benefit, an IRR is the discount rate at which NPV of all the cash flows (inflow and outflow) becomes zero.

The drivers that affect IRR are:

  • target’s financial performance
  • acquisition price
  • financing structure, especially the equity contribution made
  • exit multiple, and
  • holding period.

As mentioned in my first article – LBO: An Overview –, a sponsor seeks a minimum of 20% return on their investment over their holding period of five years. So, it’s obvious (looking at the drivers of IRR) that minimizing the equity contribution and acquisition price, while exiting at a higher valuation by boosting the financial performance of the target, fetches handsome returns.

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