Oracle buys Taleo for US$1.9B

Oracle said Thursday that it was acquiring Taleo, an on-demand talent management software company, for US$1.9B. Taleo is a competitor to SuccessFactors, which happened to be acquired by Oracle rival SAP.

With the Taleo acquisition, Oracle has bolstered its cloud human resource (HR) apps. Both SAP and Oracle appear to be setting up for a broader showdown with Workday, a fast-growing outfit set to go public in 2012.

That acquisition works out to US$46 a share. Taleo closed at US$38.94 on Wednesday.

Oracle said in a statement that Taleo will allow it a cloud stack to manage HR and careers. Taleo's board approved the deal, which is expected to close in the middle of the year. Taleo has 1,400 employees and 5,000 enterprises using its software.

Oracle's move to buy Taleo does not come as a big surprise. Speculation was raised soon after SAP bought SuccessFactors and Oracle acquired RightNow.

The latest acquisitions allow the software giants to "cloudify" their operations. This allows them to compete with the likes of software-as-a-service (SaaS) players such as Salesforce.com, NetSuite and Workday.

One looming issue for Oracle is catering to the swell of PeopleSoft customers looking for upgrades. Workday has actively targeted PeopleSoft customers as has Taleo. By acquiring Taleo, Oracle will be able to cross-sell and offer these potentially wayward PeopleSoft accounts a SaaS option.

Peter Goldmacher, an analyst at Cowen & Co., called Oracle's move to buy Taleo defensive. Goldmacher said: "We view this deal as an indictment against Oracle's Fusion Apps and an indication of how concerned Oracle is about losing business and maintenance streams to emerging SaaS HR juggernaut Workday."

"While the purchase price was more reasonable than the 8x revenues SAP paid for SuccessFactors, it is still considerably more than Oracle has historically paid for its acquisitions, further reinforcing our belief that this is a defensive move. This acquisition comes quickly on the heels of the RightNow acquisition, another defensive acquisition meant to slow down another encroaching SaaS provider, Salesforce.com," he added.

The move also allows Oracle to tap on the growing opportunities in the HR segment, which is seen as becoming critical to next-generation enterprise resource planning (ERP) systems. This is highlighted by the fact that the economy has become increasingly dominated by services companies. Industry leaders such as Salesforce.com have been busy on this front. The company recently splashed out and bought Rypple.

Ovum analyst Tim Jennings said: "These acquisitions indicate the increasing enterprise acceptance of the SaaS model, with human capital management (HCM) following in the footsteps of customer relationship management (CRM) as the next SaaS battleground. It also emphasizes the urgency that the major enterprise application vendors attach to establishing a strong position in cloud-based software."

"Both Oracle and SAP have existing on-premise HCM solutions, but both have been prepared to pay out large sums on cloud-based equivalents, rather than simply transitioning their existing solutions to the cloud," he added.

This article was first posted on ZDNet.