Oracle follows Microsoft into healthcare push with Cerner — is Salesforce next?


Oracle Corp. on Monday confirmed plans to acquire Cerner Corp. for nearly $30 billion, pushing into the healthcare space a few months after another software giant, Microsoft Corp., made a similar acquisition, leaving analysts to wonder what other software companies will look to buy their way into hospitals.

Oracle
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-5.15%

agreed to pay $95 a share in cash for Cerner
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for an equity value of $28.3 billion, the richest deal in the software company’s long lineage of software purchases. Cerner sells software that helps doctors access and analyze medical records, producing revenue of $5.5 billion in the 2020 calendar year and $4.3 billion in the first three quarters of this year.

“With this acquisition, Oracle’s corporate mission expands to assume the responsibility to provide our overworked medical professionals with a new generation of easier-to-use digital tools that enable access to information via a hands-free voice interface to secure cloud applications,” Oracle co-founder and Chief Technology Officer Larry Ellison said in a statement Monday morning.

The healthcare industry, one of the largest in the U.S., has been slow to move into cloud software and cloud computing due to complex rules about digital record-keeping involving health information. Software companies have looked to jump into segments that have proved popular with hospitals and other healthcare providers, including Microsoft’s
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nearly $20 billion acquisition earlier this year of Nuance, a software company that has worked with Cerner in the past.

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“The conventional wisdom on healthcare is that it’s a big vertical, but not one that’s adopted or embraced digital technologies as much as some others,” Third Bridge Vice President and Global Lead Scott Kessler wrote in an email Monday. “Cleary Oracle with this pending Cerner deal, and Microsoft with its planning purchase of Nuance Communications, which is also very healthcare oriented, see significant potential.”

With Microsoft and Oracle already in the game, analysts wonder if another prominent software company, Salesforce.com Inc.
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will be next, though maybe not soon.

“We believe it’s only a matter of time until Salesforce looks to broaden its footprint in this space,” Stifel analysts wrote late last week, after news of Oracle’s interest in Cerner first surfaced. “Given Salesforce’s recent M&A moves and commitment to near-term margin expansion, we believe such a move is unlikely to happen until late CY22 or sometime in CY23.

Oracle’s next moves could come quicker. The company has been known to buy companies in bunches, including a spree of cloud-focused acquisitions that culminated with the purchase of NetSuite, a reaction to the growing popularity of Salesforce after Oracle downplayed the rise of cloud software.

“It could mark a return to Oracle’s days of aggressive acquisition activity during which time the company very effectively rolled-up the legacy client-server application space,” the Stifel analysts, who have a “hold” rating and $87 price target on the stock, wrote. “What is different this time is that the sector is in the midst of strong secular growth driven by an architectural shift to the cloud while the mid 2000s was ripe for consolidation given the significant number of inefficiently run application vendors that had hit the growth-wall.”

Oracle also could be using the Cerner acquisition to get a toehold in the healthcare industry and convince those customers to use its cloud-computing option. Cloud-computing providers such as Amazon.com Inc.’s
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Amazon Web Services, Microsoft and Alphabet Inc.’s
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Google see big potential in moving healthcare providers onto their cloud networks when and where the providers can use the technology.

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Oracle stock reacted negatively to the news Monday, after falling Friday in reaction to the initial reports of a potential deal. Shares fell 5.2% Monday after declining 6.4% Friday, putting the stock in correction territory — down 10% or more from a recent high — after Oracle hit an all-time closing record of $103.65 on Wednesday.

A majority of analysts who track Oracle consider the stock a hold, with 18 of 30 analysts tracked by FactSet giving the stock that rating while eight consider it the equivalent of a “buy” and four rate it the equivalent of a “sell.” The average price target as of Monday morning was $103.25.



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